Application of the twin-deficits hypothesis to the Turkish case

Date
1993
Advisor
Güvenen, Orhan
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Publisher
Bilkent University
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Language
English
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Abstract

This study detects the twin-deficits hypothesis, the mutual effects of government budget deficits and merchandise trade deficits on each other through real interest rates and real effective exchange rates, in the Turkish economy. One-sided Granger causality analysis and Ordinary Least Squares (OLS) regressions for multivariate analysis for each are used for 1987-92 monthly data. The government budget deficits are found to affect trade deficits not directly, but through the mechanism over real interest rates and real effective exchange rates. Nevertheless, the merchandise trade deficits seem to affect budget deficits directly.

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Keywords
Twin-deficits hypothesis, consolidated budget deficits, merchandise trade deficits, real interest rates, real effective exchange rates, unit roots, Granger causality, Ordinary Least Squares
Citation
Published Version (Please cite this version)