Global Liquidity, Current Account Deficit, and Exchange Rate Balance Sheet Effects in Turkey

Ahmet Çalışkan and Amira Karimova

Emerging Markets Finance and Trade, 2017, vol. 53, issue 7, 1619-1640

Abstract: This study investigates the current account deficit (CAD) of Turkey from the perspective of its capital account. We discuss how global liquidity conditions and monetary policies in Turkey have contributed to higher deficits through real exchange rate appreciations. We analyze the impact and consequences of exchange rate (ER) changes on the investments of non-financial firms. In the case of real ER depreciations, we find that the magnitude of the contractionary effect through balance sheets of firms with dollarized liabilities is significantly higher than the expansionary effect through trade competitiveness. We also analyze the “soft-landing” policies aimed at reducing the CAD in Turkey and estimate the rate of economic growth that must be foregone for a percentage reduction in CAD.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:53:y:2017:i:7:p:1619-1640

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DOI: 10.1080/1540496X.2016.1216837

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