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Current Account Deficit in Turkey: Cyclical or Structural?

Author

Listed:
  • Hakan Kara

    (Central Bank of Turkey)

  • Cagri Sarikaya

    (Central Bank of Turkey)

Abstract

Turkey’s high current account deficit has been at the core of macroeconomic policy discussions in recent years. Quantifying the role of cyclical factors in driving the current account fluctuations is essential for designing an appropriate policy response and evaluating the impact of policy measures. Using a simple methodology, this study extracts the cyclical component of the current account in Turkey, with special reference to its three main drivers; namely foreign demand, domestic demand and foreign trade prices. We argue that the underlying (cyclically-adjusted) current account deficit has displayed a persistent deteriorating trend during 1998-2007 period before stabilizing around 6 percent of GDP in recent years. Decomposing the current account deficit into cyclical and non-cyclical factors allows us to assess the impact of recent policy actions. Our computations suggest that, although the policies pursued by the central bank and other authorities since 2011 have removed the cyclical part to a great extent, there remains a sizeable component of the deficit to be dealt with more structural policies.

Suggested Citation

  • Hakan Kara & Cagri Sarikaya, 2014. "Current Account Deficit in Turkey: Cyclical or Structural?," Koç University-TUSIAD Economic Research Forum Working Papers 1420, Koc University-TUSIAD Economic Research Forum.
    • Handle: RePEc:koc:wpaper:1420
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    File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1420.pdf
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    References listed on IDEAS

    as
    1. Altan Aldan & Ihsan Bozok & Mahmut Gunay, 2012. "Short Run Import Dynamics in Turkey," Working Papers 1225, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
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    Cited by:

    1. Ayla Alkan & Ayla Oğuş Binatlı & Çağaçan Değer, 2018. "Achieving Turkey’s INDC Target: Assessments of NCCAP and INDC Documents and Proposing Conceivable Policies," Sustainability, MDPI, vol. 10(6), pages 1-27, May.
    2. Ali, Amjad & Audi, Marc, 2023. "Analyzing the Impact of Foreign Capital Inflows on the Current Account Balance in Developing Economies: A Panel Data Approach," MPRA Paper 118173, University Library of Munich, Germany.
    3. Jair N. Ojeda-Joya, 2019. "Episodios de deterioro de la cuenta corriente en Colombia: factores externos, cíclicos y estructurales," Borradores de Economia 1061, Banco de la Republica de Colombia.

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    More about this item

    Keywords

    Current Account Balance; Foreign Trade; Business Cycle; Cyclical Adjustment; Filtering.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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