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

31 Pages Posted: 15 Feb 2006

See all articles by Pierre-Richard Agenor

Pierre-Richard Agenor

University of Manchester - School of Social Sciences

C. John McDermott

Reserve Bank of New Zealand

E. Murat Ucer

affiliation not provided to SSRN

Date Written: January 1997

Abstract

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.

JEL Classification: E33, F32, F34

Suggested Citation

Agenor, Pierre-Richard and McDermott, C. John and Ucer, E. Murat, Fiscal Imbalances, Capital Inflows, and the Real Exchange Rate: The Case of Turkey (January 1997). IMF Working Paper, Vol. , pp. 1-31, 1997. Available at SSRN: https://ssrn.com/abstract=882208

Pierre-Richard Agenor (Contact Author)

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

C. John McDermott

Reserve Bank of New Zealand ( email )

2 The Terrace
P.O. Box 2498
Wellington, 6011
New Zealand

E. Murat Ucer

affiliation not provided to SSRN

No Address Available

Register to save articles to
your library

Register

Paper statistics

Downloads
146
Abstract Views
867
rank
203,428
PlumX Metrics