Consumption Smoothing and The Current Account: Turkey's Experience, 1987-1995

An intertemporal consumption-smoothing approach is adopted to examine Turkish\nbalance of payments over the period 1987-1995. The current account of a country will\nbe in deficit whenever there is an cxpcctcd rise in the national cash flow defined as\ngross national product less investment less government spending. Similarly, the current\naccount should give a surplus if there is an cxpcctcd fall in the national cash flow. The\nfindings of this paper indicate that Turkey did not (or could not) smooth consumption\nduring the sample period, suggesting that effective capital mobility was less than\nperfect. As a result, realized consumption in Turkey was more volatile than the\nestimated optimum consumption. Another implication of the results is that Turkey was\ncredit-constrained in international markets and could not exercise optimal borrowing from the rest of the world.