The validity of twin deficits hyphothesis in Turkey: Bounds testing approach

The validity of twin deficits hyphothesis in Turkey: Bounds testing approach

This paper examines the validity of twin deficits hypothesis (the relationship between the budget deficit and the current account deficit) using the data period 1998:1-2010:4 in Turkey. The paper that examines the short-run and long-run relationship between the budget deficit and the current account deficit uses the bounds testing approach. Our results show that there is no long-run relationship between the two deficits but there is a strong positive relationship between the two deficits in the short-run. When the budget deficit increases one percent, the current account deficit also increases 0,18 percent in the short-run. While the findings support the Keynesian approach that holds the validity of the twin deficits hypothesis in the short-run, they support the Ricardian equivalence hypothesis that rejects the twin deficits hypothesis in the long-run.

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Maliye Dergisi-Cover
  • ISSN: 1300-3623
  • Yayın Aralığı: Yılda 2 Sayı
  • Başlangıç: 1973
  • Yayıncı: Hazine ve Maliye Bakanlığı