Magnitude and sustainability of current account deficit in Turkey

In this thesis, intertemporal approach has been used to compare with the real current account and optimal current account balance for Turkey. First section presents balance of payment and its theoretical approach. Section 2 lays out the framework of intertemporal approach which is used to explain real current account balance. In section third, current account sustainability has been analyzed for the period between 1987 and 2006 for Turkish Economy. First of all main facts which can affect current account sustainability has been investigated by using cointegration tests for Turkish Economy. Using cointegration tests, real current account and optimal current account balance, which economy needs to achieve, has been estimated and compared with Wald Test. The empirical evidence showed that the real current account and optimal current account series are quite different between each other. Therefore, the current account balance of Turkish Economy has been reached to an unsustainable magnitude.