Current Account Benchmarks for Turkey

Turkey’s current account deficit widened to almost 10% of GDP in 2011 and has been narrowing only gradually since. An important question is to what extent Turkey’s current account deficit is excessive. To explore this issue, one needs to establish benchmarks. In this paper current account benchmarks are derived using the external sustainability as well as the macroeconomic balance approach. However, the standard macroeconomic balance approach ignores the uncertainty inherent in the model selection process given the relatively large number of possible determinants of current account balances. This paper therefore extends the macroeconomic balance approach to account for model uncertainty by using Bayesian Model Averaging techniques. Results from both approaches suggest that current account benchmarks for the current account deficit lie in the range of 3% to 5½ per cent of GDP, which is broadly in line with previous estimates but substantially below recent current account deficit levels. This Working Paper relates to the 2012 OECD Economic Survey of Turkey (www.oecd.org/eco/surveys/turkey).