Capital flows and current account dynamics in Turkey: A nonlinear time series analysis

The paper offers an analysis of current account dynamics and its sustainability in Turkey using quarterly data. The focus is on the nonlinear characterization of the long run intertemporal budget constraint and the stationarity tests. Several well-known tests are applied to identify nonlinearity in the current account time series. The analysis reveals that while the classical unit root tests based on linear specification give rise to conflicting results as to the nonstationarity of the current account deficit series, a threshold unit root test due to Caner and Hansen (2001) fails to reject the null of nonstationarity, implying that the intertemporal budget constraint would not be satisfied in the long run.