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An Examination Of The Causality Relationship Between Current And Financial Accounts In Turkey

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  • Özcan Karahan
  • Olcay Çolak

Abstract

In today’s economies, where commerce and the economy are strongly in-terrelated, the relationship between current account and financial account has become crucial. However, economists have not reached a consensus regarding the direction of the causality relationship between capi-tal and current accounts. Our study aims to contribute to the literature by determining the direction of the causality relationship between current and financial accounts in Turkey, applying the Johansen Cointe-gration Test and the Vector Error Correc-tion (VEC) model to quarterly data for 2002–2018. The empirical results show that the causality relationship in Turkey runs from the financial account to the current account. This means that capital inflows to Turkey have the potential to deteriorate the current account balance. Therefore, it is of crucial importance that Turkey implement policies to manage the financial account in order to provide a current account balance.

Suggested Citation

  • Özcan Karahan & Olcay Çolak, 2020. "An Examination Of The Causality Relationship Between Current And Financial Accounts In Turkey," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 65(224), pages 7-28, January –.
    • Handle: RePEc:beo:journl:v:65:y:2020:i:224:p:7-28
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    4. Abdulnasser Hatemi-J, 2012. "Asymmetric causality tests with an application," Empirical Economics, Springer, vol. 43(1), pages 447-456, August.
    5. Evan LAU & Nelson FU, 2011. "Financial And Current Account Interrelationship: An Empirical Test," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 6(1(15)/ Sp), pages 34-42.
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    Cited by:

    1. Radovan Kovačević, 2022. "The Effects Of Fdi Net Inflow On The Current Account Of Southeast Europe Countries – A Panel Causality Analysis," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 67(235), pages 95-122, October –.

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    More about this item

    Keywords

    current account; financial account; Turkish economy;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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