Modelling and Forecasting of Turkey Current Account Imbalance with Threshold Autoregressive Models

Abstract

The increase in number of countries with current account deficit in recent years, and the emergence of studies analyzing whether these deficits make the economies more vulnerable to external shocks draws attention to current account imbalances. In addition, the significant effect of current account balance on macroeconomic policies requires building econometric models for the mentioned series and making forecast. However, it is seen that the empirical studies on current account balance for Turkey are based on linearity hypothesis and linear models. Moreover in these studies, the possibility of this series can be created with the nonlinear process has been ignored. In this paper it is assumed that if the current account series is nonlinear, then it can be adequately described by a TAR family model. In the case of this series is not linear, the aim is to choose appropriate TAR model and to make out-of-sample forecasts. The findings of this study can be outlined as follows: over the period 1998:01 to 2008:09, the share of current account balance to GDP is nonlinear; the model which best captures the nonlinearity is LSTAR.

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