The analysis of business cycles in Turkey with supply and demand shocks

In contemporary economies which are changing continuously, for achieving sustainable growth and satisfying stabilization, necessary interventions should be made on time. Hence business cycle fluctuations in the economy must be investigated carefully and the policies to be applied must be determined according to the achieved results. About the structure of the shocks which are the cause of business cycles, different schools have different point of view. According to Classical, Keynesian and Monetary business cycle theories the changes in aggregated demand are the reason for the economic fluctuations. On the other hand real business cycle theory, believes that economic fluctuations occur because technological changes lead to supply shocks.The aim of this study is to find out reasons of fluctuations and to state in which degree real business cycle theory can explain business cycles in Turkish economy. In able to confirm this by using quarterly data between 1987:1-2007:3 the shocks that cause to business cycles in Turkish economy are tried to be determined by vector autoregression (VAR) analysis through real business cycle theory.According to the results the main reason for GNP fluctuations is both long term and short term supply shocks which are acceptable with the business cycle theories previsions. In the short term another factor that explains the fluctuations in GDP is the changes in demand shocks. This effect declines in time and stays in very low level in the long term. Apart from this, the effects of changes in terms of trade on GDP occur in the long run. Also it is discovered that nominal shocks do not have any effects on neither long run nor short run GDP fluctuations.