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The Validity of Twin Deficits Hyphothesis in Turkey: Bounds Testing Approach
(Maliye Bakanligi, 2011) Bolat, Su. leyman; Belke, Murat; Aras, Ozan
This paper examines the validity of twin deficits hypothesis (the relationship between the budget deficit and the current account deficit) using the data period 1998:1-2010: 4 in Turkey. The paper that examines the short-run and long-run relationship between the budget deficit and the current account deficit uses the bounds testing approach. Our results show that there is no long-run relationship between the two deficits but there is a strong positive relationship between the two deficits in the short-run. When the budget deficit increases one percent, the current account deficit also increases 0,18 percent in the short-run. While the findings support the Keynesian approach that holds the validity of the twin deficits hypothesis in the short-run, they support the Ricardian equivalence hypothesis that rejects the twin deficits hypothesis in the long-run.