An Intertemporal Benchmark Model for Turkey’s Current Account

because the information necessary is already reflected in the current account. This is based on

Campbell and Shiller’s (1987) work on savings and income.

We estimate unrestricted bivariate vector auto regression (VAR) of changes in national cash
flow and the actual consumption smoothing current account given by the following

where ∆z_t =∆( q_t - i_t - g_t ) is the change in national cash flow, ca_t is the actual consumption
smoothing current account which equals y_t - i_t - g_t - θc_t (analogous to equation (5) of the

optimal current account), a (L), b (L), c (L) and d (L) are polynomials in the lag operator of order p,

and u ₁₁ and u₂₁ are errors with a conditional mean of zero.

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