Causal Relationship between Current Account Deficit Rate and Industrial Production Growth in Turkey: Mixed-Frequency VAR Approach

Keywords

Current Account Deficit, Industrial Production, M-F VAR, Granger Causality, Turkish EconomY

Abstract

In this study, the causal relationship between current account deficit rate and industrial production growth in Turkey is investigated by applying the mixed-frequency VAR approach developed by Ghysels et al. (2016). The data span from January 2005 to September 2018 for monthly industrial production index and from the first quarter of 2005 to the third quarter of 2018 for the quarterly current account deficit rate. Granger causality tests suggest that there is only one-way causal relationship between in the variables. It is running from industrial production to current account. Impulse response functions confirm the same causal relationship. Based on causality tests and impulse response functions, it can be concluded that the main reason for the recent improvement in the current account deficit is the contraction in industrial production in Turkey.

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