Effects of economic policy means on current account deficits in Turkey

Integration of Turkey to the economy of the world has been ongoing since the year 1980 in the framework of the January 24th Declaration. In this process, during which outward-oriented and liberal economy policies have been applied, current account deficits have experienced relatively high increases in comparison with the former periods, and gained permanence, except for the crisis periods. The increase in current account deficit has affected not only external unbalancedness, but also the policies aimed at providing and preserving domestic balance. In this context, the debates about the reasons and sustainability of current account deficit are going on both in the literature of economy and among policy makers and appliers.In an outward-oriented economy, relations between current account deficit and economic policy means are very comprehensive. Like the results of the economic policies being applied, the aim at quenching the current account deficit may also give shape to economic policies. In this framework, the purpose of the study is to identify the relations between economic policy means and current account deficits, and to propose economic policy means intended to prevent current account deficit.In the first part of the study, current account deficit and its reasons were defined and and the developments in current account deficit since 1980 were examined with some fundamental macro indicators. In the second part, fundamental elements of economy policy and and economic approaches to prvide external balance were taken into consideration, and a review of literature was held. In the third part, the aim of the sudy, its significance and some information about the variants used are presented and then, the method used is defined hypothetically.The stage of application is carried out by applying Vector Autoregressive Model with the quarters of annual data belonging to the periods of 1987:1-2007:3 in Turkey. The analysis of VAR is preferred because it makes the relations between the variants be stipulated in many aspects. The analysises are carried out by the E-views 6 pack programme. The application results were determined with dynamic pattern of the relations between the variants, degradation of variances and function of cause and effect, in the framework of relation of causation.The results of the study has revealed that current account deficit has been affected in a negative way by current account deficits in he former periods. This result seems to support the debates in the point of view that current account deficit has gained a chronic structure in Turkey. In addition to this, real exchange rates, domestic economic growth rate and index of openness are reasons of current account deficit in the sense of Granger. The rise in the variants mentioned have affected the current account deficit in a negative way. There?s not a meaningful relation of causation ranging from current account deficit to domestic economic growth rate and to index of openness. Besides, the variants caused by current account deficit in the sense of Granger are M2Y, domestic debting, and the total cover rate of import taxes over total import. In the conclusions of the application, statistically meaningful relations between the current account deficit the other variants were also explained in the framework of the analysises of variance degradation and cause and effect.Key Words : Current Account Deficit, Economy Policy, Economy of Turkey, Analysis of VAR, Granger Causation, Dynamic Analysis.