Determinants of Foreign Trade Deficits in the Turkish Economy

The purpose of this study is to analyse the relations between the basic macro economic variables that determine the budget deficits and current accounts deficits and to determine the dynamics of the relation between these two deficits via vector-autoregression. The Vector Autoregression (VAR) is commonly used for forecasting systems of interrelated time series and for analyzing the dynamic impact of random disturbances on the system of variables. The VAR approach sidesteps the need for structural modeling by treating every endogenous variable in the system as a function of the lagged values of all of the endogenous variables in the system. The period of 1989Q1-2009Q3 was analysed by using the var model with quarterly data. According to the results of the variance decomposition, which is expressed in terms of arithmetical averages for all of these periods, while the shocks of public and private consumption expenditures explain approximately 30% of the estimation error variance of goods and services balance, exchange rate shocks explain 21% and interest rates explain approximately 10% of the estimation error variance of the foreign trade balance.