Abstract
After the liberalization of capital account in 1989 in Turkey, speculative capital inflows have significantly come for the higher interest rates induced by incremental budget deficits in Turkey. While the budget standing has got closer to balance, current account deficit problem has kept its agenda. Thus, a new potential determinant of current account, namely the gap between private savings and investment is proposed recently. Therefore, the study explores the determinants of net private savings and investment gap along with the effect of oil price shocks on them before and after the 2001 crisis. The reason of introducing the oil price as an additional variable to the model is to explain the effect of oil prices on current account deficit through the private savings and investment gap. For this purpose, the bound testing approach to cointegration within an autoregressive distributed lag (ARDL) framework and error-correction model (ECM) methodology, is applied for the period of 1990: Q1-2007:Q3. Expected empirical results provide evidence of the simultaneous effectiveness of interest rate for deposit, GDP growth, and oil price on net private savings rate in both short and long runs. Key words: Oil prices, savings - investment gap, autoregressive distributed lag (ARDL).
Highlights
Neo-liberal approach dominated on economic policies since 1980s is based on the assumption that when developing countries lacking funds accomplish financial liberalization they can benefit from foreign funds (Ostry and Reinhart, 1995:16)
Oil price changes always increased private savings rates more than private investment whereas the net private saving gap has declined after 2001 Turkish financial crisis, which supports that the magnitude of two effects may differ before and after the crisis
The main contribution of the paper is that the time varying impact of oil price shocks on NPRS is explored
Summary
After the liberalization of capital account in 1989 in Turkey, speculative capital inflows have significantly come for the higher interest rates induced by incremental budget deficits in Turkey. The study explores the determinants of net private savings and investment gap along with the effect of oil price shocks on them before and after the 2001 crisis. The reason of introducing the oil price as an additional variable to the model is to explain the effect of oil prices on current account deficit through the private savings and investment gap. For this purpose, the bound testing approach to cointegration within an autoregressive distributed lag (ARDL) framework and error-correction model (ECM) methodology, is applied for the period of 1990: Q1-2007:Q3.
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