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The effects of government spending shocks on the real exchange rate and trade balance in Turkey

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  • Cem Çebi
  • Ali Askın Çulha

Abstract

The aim of this study is to investigate the effects of government spending shocks on the real exchange rate and foreign trade balance in Turkey for the period of 2002:01-2012:04 within a structural VAR framework. The analysis shows that a positive shock to the government spending tends to induce real exchange rate appreciation and deterioration in trade balance. We also find that the composition of the government spending matters. Although shocks to the government nonwage consumption generate an appreciation in the real exchange rate and worsening of the trade balance, the effects of government investment shocks remain insignificant. Furthermore, the analysis demonstrates that shocks to government spending are associated with a rise in taxes, which is indicative of a spending-driven tax adjustment process in Turkey.

Suggested Citation

  • Cem Çebi & Ali Askın Çulha, 2014. "The effects of government spending shocks on the real exchange rate and trade balance in Turkey," Applied Economics, Taylor & Francis Journals, vol. 46(26), pages 3151-3162, September.
    • Handle: RePEc:taf:applec:v:46:y:2014:i:26:p:3151-3162
    DOI: 10.1080/00036846.2014.922673
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    Cited by:

    1. Chung-Fu Lai, 2018. "Fiscal Policy and Macroeconomic Fluctuations in a Fixed Exchange Rate Regime," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(10), pages 1257-1273, October.
    2. Ramona Tiganasu & Gabriela Carmen Pascariu & Dan Lupu, 2022. "Competitiveness, fiscal policy and corruption: evidence from Central and Eastern European countries," Oeconomia Copernicana, Institute of Economic Research, vol. 13(3), pages 667-698, September.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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