ENERGY PRICE SHOCKS AND DYNAMICS OF CURRENT ACCOUNT IN TURKEY: IS THIS TIME DIFFERENT?

Abstract

Purpose- In this article, we examine the link between current account and energy prices, namely crude oil, coal and natural gas in Turkey the years between 2005 and 2016.

Methodology- This article investigates how the changes in the energy prices affect the current account in Turkey. For this purpose, a Factor-Augmented Vector Auto Regression (FAVAR) model is used with economic data from the Turkish economy and world commodity price indexes to obtain empirical results for current account dynamics in the Turkish economy. The impact of various factors that include crude oil prices, coal prices, natural gas prices data have been studied by obtaining impulse response functions.

Findings- Natural gas prices gradually affect the current account. The impact is permanent after a period indicating a very limited elasticity. Oil prices have an immediate impact on the current account. Swings, in the long run, indicate some degree of elasticity. The negative effect of coal price on the current account deficit occurs with a significant delay.

Conclusion- We can conclude that, from all of the energy indices, the crude oil price is the most effective on the current account.

Keywords

• Current account,oil prices,FAVAR model,Turkish economy

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