Turkish current account deficits sustainability

World economies have financial crisis experience; especially Latin America and Southeast Asian countries because of having external imbalances at the end of 1980?s and 1990?s. The ways of theoretical current account adjustment have become invalid since high volume of capital inflows raised. However in the last period intertemporal consumption theory became more popular in the economic literature. In this view if a debtor country satisfies its intertemporal budget constraint then its current account deficit will be sustainable. Also Turkish economy has experience of high volume capital outflows therefore current account deficits were become unsustainable in 1994 and 2001 years. After 2001?s Turkey?s current account deficits have reaching maximum levels so that Turkey?s current account position is argued again. The aim of this study is to analyze the sustainability of current account deficits in Turkey by employing cointegration methods. For this reason Husted (1992) model is used for current account deficits sustainability. In this model, if model?s variables which are X and MM are cointegrated, current account deficit will be sustainable however this condition is sufficient to sustainability. Thus debtor country is going to satisfy its intertemporal budget constraint. Quarterly data between 1987 and 2006 is used in this study. The results of the study show that Turkey?s current account sustainability is strongly sustainable so that Turkey?s intertemporal budget constraint is satisfied by foreign trade data. Structural change investigates endogenously in time series and its effect to model is removed by adding dummy variables. However robustness of long-run estimated parameters is applied F-break point test which shows that long-run estimated parameters isn?t affected significantly by structural changes in the time span. In this way our conclusion is Turkey?s current account position is sustainable so that future income will be enough to meet past current account deficits. Keywords; 1) Current Account Deficits, 2) Turkish Economy, 3) Intertemporal Model, 4) Johansen Cointegration Test, 5) Zivot-Andrews Unit Root Test