Sustainability of current account deficit with high oil prices: Evidence from Turkey
Erkan Özata
Abstract:
Current account deficit as a ratio of GDP is a commonly used measure that determines the sustainability of current account deficits. But other factors such as the composition of the current account deficit, the methods which are used to finance it, exchange rate policy, macroeconomic condition and global economic outlook may also have important implications about the future of current account deficits. The current account deficit in Turkey is regarded as structural because of the dependence of Turkish production and exports on imported intermediate goods. Another factor affecting the current account deficit is the changing oil prices which is a cyclical component. Turkey’s reliance on energy imports is a major factor behind its bloated current account deficit. The traditional approach to investigate the improvement of the external imbalance is based on the import and export functions. Different from this approach in this study a Structural Vector-Autoregression (SVAR) model will be applied to investigate the effects of fuel imports and foreign exchange policy on Turkey’s current account deficit and economic growth. This model will allow us for simultaneous examination of the link between real oil imports, real effective exchange rate, domestic income and the current account.
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APA citation
- Erkan Özata (2014). Sustainability of current account deficit with high oil prices: Evidence from Turkey. International Journal of Economic Sciences, Vol. III, No. 2/2014, pp. 71-88.