Exploring The Twin-Deficit Hypothesis by Considering the Energy Prices in Türkiye: The Evidence from the Rolling Window and the Spectral Causality Analyses

Worsening the budget and current account balance has been one of the government’s most urgent issues, especially since the 1980s. Within this context, various studies have been conducted to find the accurate solution and whether there is a connection between the two unpleasant macroeconomic problems. The study aims to address the twin-deficit hypothesis at the full and sub-samples, with different frequencies, by employing the advanced causality test approaches in the case of the Turkish economy by considering energy prices. The Toda-Yamamoto, the Rolling-Window, and Breitung-Candelon Causality analyses are performed on the monthly data spanning from 2009:01 to 2024:08. When examining the evidence on the entire sample, the Ricardian Equivalence hypothesis is verified, and energy prices induce the budget deficit. However, the current account deficit and energy prices affect the budget defict in the short run due to the outcome of the spectral analysis. The Rolling window discloses the causality relationship among the variables at the varied time intervals. The final testament of the study approves the Ricardian Equaliance in the case of Türkiye and rejects the twin-deficit hypothesis. The policy actions are recommended for the policy-makers based on the evidence obtained in the study.