Abstract:

Ensuring macroeconomic stability in the economies is extremely important for future decision-making process of economic agents. The balance of payments of a country is the projection of all international economic transactions between residents of that country and those of the rest of the world. In the balance of payments statistics the current account balance is influenced by commercial, monetary and fiscal policy practices. This is why, it is one of the main leading indicators for macroeconomic stability. In this respect, current account deficits must be sustainable in order to ensure macroeconomic stability in a country. The objective of this paper is to analyze validity of the intertemporal current account model by using alternative unit root tests based on nonlinear time series technique in Turkey. For this purpose, We used quarterly data for the ratio of current occount balance to GDP variable in 1987:1 2012:1 period. Through the empirical analysis in this study, it is found out that the intertemporal current account model is valid in the period before the inflation targeting regime (1987:1-2001:4). In contrast,it is not valid in the after before the inflation targeting regime ((2002:1-2012:1)). In other words, We conclude that current account deficits are unsustainable after the inflation targeting regime while this deficits are sustainable before it. These findings suggest that policymakers should focus on account balance deficits in today.

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