The objective of the present paper is to explore the sustainability of external position of Turkey over the period 1987Q1-2008Q2 by using the intertemporal approach to current account as well as some important macroeconomic indicators. The empirical methodology used to test the intertemporal model of the current account in this paper is the present value test. Turkey experienced large external deficits and over-valuation of the national currency over the period 2004Q1-2008Q2. The empirical evidence presented in this paper indicates that current account deficits of Turkey were unsustainable over the period 1987Q1-2008Q2. Furthermore, the empirical results of external sustainability reveal that the actual current account deficits were excessive relative to the optimal current account balances over the period 2004Q1-2008Q2.
Key words: Current Account Deficits, Sustainability, Cointegration Article Language: EnglishTurkish
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