Twin Deficits Phenomenon: Empirical Evidence from the ARDL Bound Test Approach for Turkey

Ali Acaravci, Ilhan Ozturk

Abstract


The purpose of this paper is to examine the general validity of twin deficits hypothesis for Turkey during the period 1987:1 to 2005:4. In this study, the autoregressive distributed lag (ARDL) model and the bounds test for cointegration were used to assess the short-run and long-run dynamics between the twin deficits in Turkey. The empirical analysis in this paper rejects the Ricardian Equivalence Hypothesis and supports the Keynesian view that there is a long-run relationship between budget deficit and current account imbalances. The empirical results also indicate that the direction of causality runs from the budget deficit to the current account deficit.

Keywords


Twin deficits, current account deficit, budget deficit, ARDL, Turkey



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