You are here

Home » Content

Budget Deficits and Interest Rates: An Empirical Analysis for Turkey

Journal Name:

  • Eurasian Journal of Business and Economics

Publication Year:

  • 2012

Key Words:

Author NameUniversity of AuthorFaculty of Author
Abstract (2. Language): 
The aim of this study is to analyze causality between budget deficits and its ratio to gross domestic product and interest rate in the Turkish economy during years between 2006 and 2011. By doing so, we investigate the validity of crowding out view against the Ricardian equivalence hypothesis. To this end, we employee the conventional Toda-Yamamoto (1995) linear Granger type causality test and Hacker and Hatemi-J (2005, 2006) bootstrap process-based Toda-Yamamoto linear Granger type causality test. In this regard, we use Kwiatkowski, Phillips, Schmidt and Shin (1992, KPSS) and Elliot, Rothenberg, Stock (1996, DF-GLS) unit root tests. Analysis results show that there is no causal relation between budget deficits, budget deficit ratio to gross domestic product and nominal interest rate. Results reveal the existence of Ricardian equivalence hypothesis. Rational household predict that there is no difference between payment time of taxes and they know that expansionary fiscal policies financed by loan do not affect aggregate demand and capital allocation in a full-employment economy via nominal interest rate channel. Results of empirical analysis support Ricardian equivalence hypothesis and imply that there is no effect of financing type of budget deficit on nominal interest rate.
Bookmark/Search this post with
FULL TEXT (PDF): 
PDF icon arastirmax-budget-deficits-and-interest-rates-empirical-analysis-turkey.pdf
  • 9
119-128
  • English

JEL Codes:

REFERENCES

References: 

Aisen, A., Haunner, D., (2008), “Budgets Deficits and Interesrt Rates: A Fresh Perspective”,
IMF Working Paper, WP/08/42, 1-21.
Arıcan, E., (2005). “Ricardocu Denklik Teoremi ve Teorilerde Kamu Açıklarına İlişkin
Yaklaşımlar: Türkiye Ekonomisine İlişkin Bir Uygulama”, Marmara Üniversitesi İİBF Dergisi,
Cilt XX, Sayı, 1., 77-94.
Barro, R.J., (1989), “The Ricardian Approach to Budget Deficits”, The Journal of Economic
Perspective, Vol:2(2), 37-54.
Barro, R.J. and Sala-i-Martin, X. (1990) "World Real Interest Rates", NBER Macroeconomics
Annual. Cambridge, MA: M.I.T. Press.
Başar, S., Temurlenk, M.S., (2007), “Investigatinf Crowding –out Effect of Government
Spending for Turkey: A Structural VAR Approach”, Vol:21(2), 95-104.
Bilgili, E. ve Bilgili, F. (1998); “Bütçe Açıklarının Cari İşlem Dengesi Üzerindeki Etkileri: Teori ve
Uygulama”, İşletme-İktisat ve Finans Dergisi, 13(146), 4-16.
Cheung, Y-W., Lai, K. (1995), “Lag Order And Critical Values of the Augmented Dickey-Fuller
Test”, Journal of Business and Economics Statistics, Vol:13, No:3, 277-281.
Correia-Nunes, J., Stemitsiotis, L., (1995), “Budget defict and interest rate:is there a link?
International Evidence”, Oxford Bulletin of Economics and Statistics, 7,425-449.
Düzgün, Recep, (2010). “Türkiye Ekonomisi’nde Para ve Maliye Politikalarının Etkinliği”,
Uluslararası Sosyal Araştırmalar Dergisi, Cilt 3, Sayı 11., 230-237.
Tayfur BAYAT, Selim KAYHAN & Mehmet SENTURK
Efron, B., (1979), “Bootstrap Methods: Another Look at the Jackknife”, Annals of Statistics, 7,
1-26.
Elliot, G., Rothenberg, T.J., Stock, J.H. (1996), “Efficient Tests for an Autoregressive Unit
Root”, Econometrica, 64(4), 813-836.
Evans, P., (1985), “Do large deficits produce high interest rate?”, Amercan Economic Review,
75(1), 68-87.
Feldstein, M., (1980), “Government Deficits and Aggregate Demenad”, NBER Working
Papers, 435, 1-14.
Hacker R.S., Hatemi-J, A., (2005), “A test for multivariate ARCH effects”, Applied Economics
Letters, 12 (7), 411-417.
Hacker R. S. and Hatemi-J, A. (2006) “Tests for Causality Between Integrated Variables Based
on Asymptotic and Bootstrap Distributions: Theory and Application”, Applied Economics,
38(13), 1489-1500.
Hatemi-J, A., (2003), “A new method to choose the optimal lag order in stable and unstable
VAR models”, Applied Economics Letters, 10 (3), 135-137.
Hatemi-J, A., (2005), “Bootstrap-corrected tests for causality: theory and applications in
finance”, Invited Key-speaker Presentation at II Simposio Nacional de Docentes en Finanzas,
July 1315, Bogota.
Hatemi-J, A., (2008), “Forecasting Properties of a new method to determine optimal lag
order in stable and unstable VAR Models”, Applied Economics Letters, 15(4), 239-243.
Hatemi-J A., Irandoust, M., (2006), “A bootstrap-corrected causality test: another look at the
money-income relationship”, Empirical Economics, 31 (1), 207-216.
Hatemi-J A., Morgan, B, (2009), “An Emprical Analysis of the Informational Efficiency of
Australian Equity Markets”, Journal of Economic Studies, 26(5), 437-445.
Hatemi-J A., Roca, E., (2007), “Equity Market price Interdependence Based on Bootstrap
Causality Tests: Evidence from Australia and its major trading Partners”, Applied Financial
Economics, 17(10), 827-835.
Hoelscher, G., (1986), “New Evidence on Deficits and Interest Rate”, Journal of Money,
Credit and Banking, Vol:18(1), 1-17.
Kwiatkowski, D., Phillips, P.C.B., Schmidt, P., Shin, Y. (1992), “Testing the Null Hypothesis of
Stationarity Against The Alternative of a Unit Root: How Sure Are We That Economic Time
Series Have a Unit Root?”, Journal of Econometrics, 54(1-3), 159-178.
Mukhtar,T., Zakaria, M, (2008), “Budget Deficits and Interest Rates: An Emprical Analysis for
Pakistan”, Journal of Economic Cooperation, 29(2), 1-14.
Özgen, F.B., Güloğlu, B. (2004) “Türkiye’de İç Borçların İktisadi Etkilerinin VAR Tekniğiyle
Analizi”, ODTÜ Gelişme Dergisi, 31, 93-114.
Raymond, J.L., Mauleon, I., (1997), “Ahorro y tipos de interes en los paises de la EU”, Papeles
de Economia Espanola, 70, 196-214.
Toda, H., Y., Yamamoto, T., (1995), “Statistical Inference in Vector Autoregressions with
Possibly Integrated Processes”, Journal of Econometrics, 66, 225-250.
Uğurlu, E., Düzgün, R. (2009), “Türkiye Ekonomisi için Ricardocu Denklik Hipotezinin Test
Edilmesi”, Marmara Üniversitesi, İİBF Dergisi, 26(1), 99-106.

Thank you for copying data from http://www.arastirmax.com