Fiscal Imbalances, Capital Inflows, and the Real Exchange Rate: The Case of Turkey

By E. Murat Ucer, C. John McDermott, Pierre-Richard Agénor

January 1, 1997

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E. Murat Ucer, C. John McDermott, and Pierre-Richard Agénor. Fiscal Imbalances, Capital Inflows, and the Real Exchange Rate: The Case of Turkey, (USA: International Monetary Fund, 1997) accessed December 28, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines the links between fiscal policy, capital inflows, and the real exchange rate in Turkey since the late 1980s. After an overview of recent macroeconomic developments in Turkey, a vector autoregression model is estimated linking government spending, interest rate differentials, capital inflows, and the temporary component of the real exchange rate. Positive shocks to government spending and capital inflows lead to an appreciation of the temporary component of the real exchange rate, whereas positive shocks to the uncovered interest rate differential lead to a capital inflow and an appreciation of the temporary component of the real exchange rate. The findings highlight the role of fiscal adjustment in restoring macroeconomic stability.

Subject: Balance of payments, Capital account, Capital flows, Capital inflows, Expenditure, Foreign exchange, Real exchange rates

Keywords: Capital account, Capital flows, Capital inflows, Constant term, GNP deflator, Interest rate, Interest rate differential, Interest rate dofferentials, Market correction, Real exchange rate, Real exchange rates, Turkish lira, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1997/001
Stock No:

WPIEA0011997
ISBN:

9781451841596
ISSN:

1018-5941

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