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Fiscal Imbalances, Capital Inflows, and the Real Exchange Rate: The Case of Turkey
Author:
E. Murat Ucer null

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Mr. C. John McDermott null

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Pierre-Richard Agénor null

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Series:
IMF Working Papers
Volume/Issue:
Volume 1997: Issue 001
Language:
English
Publication Date:
01 Jan 1997
DOI:
https://doi.org/10.5089/9781451841596.001
ISBN:
9781451841596
ISSN:
1018-5941
Pages:
31
Keywords:
WP; interest rate; interest rate differential; real exchange rate; constant term; Turkish lira; market correction; interest rate dofferentials; GNP deflator; Real exchange rates; Capital inflows; Capital flows; Capital account
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund