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

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

ISBN 1451841590, DOI 10.5089/9781451841596.001

publication

Washington, D.C. : International Monetary Fund, 1997

1 online resource (31 p.)

Series membership

IMF Working Papers; Working Paper · ISSN 1018-5941 · IMF Working Papers; Working Paper ; No. 97/1

E. Murat Ucer

Online resource

Digital Resource · 3 libraries

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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.