Abstract
In this paper, we analyze the twin deficits hypothesis covering the period from 1994 to 2012 in Turkey. In contrast to previous studies on Turkey, the existence of twin deficits is investigated by regime-dependent impulse response functions and forecast error variance decompositions based on a multivariate two-regime threshold VAR (TVAR) model. Our results suggest that the dynamics between the current account and budget account variables are affected by macroeconomic activity: twin deficits are only the case in the upper regime, when the economy operates above its potential level. When the economy is in the lower regime, budget and trade deficits show divergent movements. The results are consistent with Kim and Roubini (2008), indicating that the divergence of fiscal balance and current account might be explained by the cyclical fluctuations of output.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
