An Intertemporal Benchmark Model for Turkey’s Current Account



Ghosh and Ostry (1995) show the method for computing restrictions when p = 1. We extend
that method for the VAR with five lags. Using equations (11) and (14) we get the following

-[10000 OOOOO][Ψ/(1 + r)][I/(1 + r)]-1 =[00000 10000]              (15)

Post-multiplying equation (15) with [I/(1 + r)] and adding [0 0 0 00 100 0 0]Ψ/(1 + r)
we get the following

[-10000 10000][Ψ /(1 + r )]=[00000 10000]                          (16)

For the VAR with five lags, the Ψ matrix can be written as follows

a 1

a2

a3

a4

a5

b1

b2

b3

b4

b 5

1

0

0

0

0

0

0

0

0

0

0

1

0

0

0

0

0

0

0

0

0

0

1

0

0

0

0

0

0

0

0

0

0

1

0

0

0

0

0

0

Ψ=

c 1

c2

c3

c4

c5

d1

d2

d3

d4

d 5

(17)

0

0

0

0

0

1

0

0

0

0

0

0

0

0

0

0

1

0

0

0

0

0

0

0

0

0

0

1

0

0

.0

0

0

0

0

0

0

0

1

0 _

Therefore, from equations (16) and (17) we get the following restrictions

c1 - a1 = 0, c2 - a2 = 0, c3 - a3 = 0, c4 - a4 = 0, c5 - a5 = 0,

(18)

d1 -b1 =1+ r, d2 -b2, d3 -b3, d4 -b4, d5 -b5

We test these restrictions using the VAR coefficients from tables IV and V. The standard
errors for the tests are computed using the Variance-Covariance matrix from the VAR. Results
for the test of equality of the two accounts are provided in table VII. From the results we see that
all but two of the restrictions hold. We therefore weakly support the IBM based on the test of this
implication.

The last implication of the model is the equality of variance of the actual and optimal
consumption smoothing current account. Using the F-test for equality of variance, we find that

16



More intriguing information

1. Psychological Aspects of Market Crashes
2. The Impact of EU Accession in Romania: An Analysis of Regional Development Policy Effects by a Multiregional I-O Model
3. Personal Income Tax Elasticity in Turkey: 1975-2005
4. THE WAEA -- WHICH NICHE IN THE PROFESSION?
5. Keystone sector methodology:network analysis comparative study
6. The name is absent
7. 03-01 "Read My Lips: More New Tax Cuts - The Distributional Impacts of Repealing Dividend Taxation"
8. Skill and work experience in the European knowledge economy
9. Public-Private Partnerships in Urban Development in the United States
10. The name is absent