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Can a Two-Sector Business Cycle Model Account for the 2001 Recession of Turkey?

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  • S. Tolga Tiryaki

Abstract

This paper investigates whether a two-sector small open economy real business cycle model calibrated to match Turkish data is able to account for the simultaneous sharp reversal in the current account, real exchange rate depreciation, and the severe recession observed in the aftermath of the 2001 financial and currency crisis of Turkey. Estimated shocks for the model's eight exogenous variables are used to simulate model dynamics, and the resulting time series are compared to the actual series. The model does a fairly good job in matching the output drop, while it faces difficulty in matching the sharp real exchange rate depreciation.

Suggested Citation

  • S. Tolga Tiryaki, 2011. "Can a Two-Sector Business Cycle Model Account for the 2001 Recession of Turkey?," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 11(1), pages 29-41.
    • Handle: RePEc:tcb:cebare:v:11:y:2011:i:1:p:29-41
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    References listed on IDEAS

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    1. Mendoza, Enrique G, 1995. "The Terms of Trade, the Real Exchange Rate, and Economic Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 101-137, February.
    2. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September.
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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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