DETERMINANTS OF CURRENT ACCOUNT: The Relation between Internal and External Balances in Turkey

This paper considers the major determinants of the current account in Turkey. It examines the long-run and short-run impact of the exchange rate and private and public savings on the current account balance. The bounds testing autoregressive distributed lag (ARDL) approach to cointegration is used and the results indicate that there is strong support for cointegration relationship between current account balance and the selected variables. The exchange rate has the strongest impact on the current account, but the signs vary in the long-run and in the short-run. Finally, the study supports the presence twin deficit phenomenon in Turkey, but the relation is slightly weaker than expected.