Examination of the Current Deficit Asymmetric Behavior With the Markov Change Model: Turkey Example

The current account balance is one of the important indicators providing information about the economic performance of a country. An unbalanced current account is undesirable for economies. There are many studies in the literature about The current account deficit (CAD) which is one of the most important issue for specially Turkey and developing countries such as Turkey. Turkey has been struggling current deficit for many years. This study focused on determining the CAD using regime change model in order to demonstrate the asymmetric behavior of the CAD based on data from 1987:Q1 to 2012:Q4 in Turkey. In this context, the data set was obtained from the database of the Turkish Statistical Institute and was free from seasonality according to the Serial Tramo-Seats method. Markov regime change model developed by Hamilton (1989) and Krolzig (1997,1998) to analyze augmented (Extended) Dickey-Fuller (1979, 1981 ADF) unit root test and conjuncture waves as analysis method in the study has been implemented. According to the findings obtained from empirical tests, the current account deficit in Turkey showed a contraction regime in the years of 1994, 2001 and 2008-2009 when economic crisis periods are experienced. In these years, when the contraction regime was observed, the current account deficit is decreasing due to the slowdown in economic growth and the import-dependent construction of exports. In studies conducted in other years, Turkey has shown an expansion regime. The increase in economic activities during the expansion periods of the current account balance causes a high current account deficit.

Keywords

Macroeconomics, Unit Root, Current Account Balance, Regime Change, Asymmetry