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

δ Zt
cat


a ( L ) b ( L ) Jδ Zt-1
c ( L ) d ( L ) ɪ cat-1


(7)


where zt =∆( qt - it - gt ) is the change in national cash flow, cat is the actual consumption
smoothing current account which equals
yt - it - gt - θct (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.


(8)


a 1

1

0

ap b1

......

. bP ~
0

u 1, 1
011

M

0

1

0 L

L0

M

b V

where X, =

t

cazt-p+
c

, ψ=

c1

0

O 0

c d 1

M

Ld

Lp

and vt =

M

u 21

:

0∙

...

l0 1

0L 0

0

:

0

..

. L 0

1L 0

m

_ cat - p+1 _

_m

0

O 0

M _

Lm J



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