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Debt Sustainability and the Exchange Rate: The Case of Turkey

  • Nur Keyder

    ()

    (Department of Economics, METU)

Registered author(s):

    The paper attempts to estimate the primary surplus requirement for debt sustainability in Turkey, taking into consideration not only the operational deficit and seigniorage factors but also the exchange rate factor. In estimations, a modified version of the approach suggested by the World Bank (2000:16-18; 121-124) is used (see Appendix A for the derivation of the original formula, which is slightly different from the one in the document mentioned). The analysis is carried out in two steps. First the real interest rate is estimated and then the results are plugged into the primary surplus equation. The exchange rate factor is taken up during the estimation of the real interest rate in TL, on FX-related debt. The debt sustainability issue is evaluated by comparing the estimated primary surplus-to-GNP ratios required for debt sustainability, with the targeted primary surplus ratio, taking into consideration the real interest rate and composition of the existing debt stock.

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    File URL: http://www.erc.metu.edu.tr/menu/series03/0306.pdf
    File Function: First version, 2003
    Download Restriction: no

    Paper provided by ERC - Economic Research Center, Middle East Technical University in its series ERC Working Papers with number 0306.

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    Length: 30 pages
    Date of creation: Jun 2003
    Date of revision: Jun 2003
    Handle: RePEc:met:wpaper:0306
    Contact details of provider: Postal: Ankara 06531
    Phone: +90 (312) 210 2003
    Fax: (312) 210 1244
    Web page: http://www.erc.metu.edu.tr
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    1. Milesi-Ferretti, Gian Maria & Razin, Assaf, 1998. "Current Account Reversals and Currency Crises: Empirical Regularities," CEPR Discussion Papers 1921, C.E.P.R. Discussion Papers.
    2. Morris Goldstein, 2003. "Debt Sustainability, Brazil, and the IMF," Working Paper Series WP03-1, Peterson Institute for International Economics.
    3. Sebastian Edwards, 2002. "Debt Relief and Fiscal Sustainability," NBER Working Papers 8939, National Bureau of Economic Research, Inc.
    4. Merih Uctum & Michael Wickens, 1996. "Debt and deficit ceilings, and sustainability of fiscal policies: an intertemporal analysis," Research Paper 9615, Federal Reserve Bank of New York.
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