Cyclically Adjusted Current Account Balance of Turkey

We estimate the impact of the domestic and trade partners’ business cycles on the current account balance of Turkey and build a cyclically-adjusted current account balance from 2003Q1 to 2019Q1. To this end, we adopt a methodology that is based on the estimation of domestic and foreign business cycles by a modified version of HP filter and the approximation of their impact on the goods and services trade balances, separately. Our findings suggest that the level and evolution of the current account balance are mainly determined by non-cyclical factors although the size of cyclical adjustment reaches up to 1.4 percent of GDP in certain periods. The domestic business cycles seem to be the main driver of the cyclical changes in the current account balance throughout the period of analysis. Furthermore, the cyclical adjustment is more pronounced in the goods trade balance than the services trade balance. Foreign business cycles have a much bigger effect on the services trade balance than the goods trade balance when compared to the impact of domestic business cycles. Finally, the incorporation of price cycles into the analysis points out that the final cyclically-adjusted current account balance turns out to be more positive in recent periods unlike the case in which only the business cycles are taken into account.