The Devil’s Triangle: Empirical Evidence from Turkey on Growth, Current Account Deficit, and Inflation

Abstract

Determining the existence of the relationship between economic growth, current account deficit, and inflation will guide the selection of policies to be implemented. The distortions that may be caused by the policies to be preferred can be minimized by the measures to be taken if the relations are known. From this point of view, this study is a metaphorical study emphasizing the Bermuda Triangle, which caused unexplained losses due to the name given to the study. In the study, to determine the existence and direction of the relations between the variables, Turkey’s annual growth, current account deficit, and inflation data for the 1974–2020 period were taken and subjected to various analyzes. In this study, carried out from this point of view, to determine the existence and direction of the relations between the variables, the annual growth, current account deficit, and inflation data of Turkey for the 1974–2020 period were taken and subjected to various analyzes. Augmented Dickey-Fuller (ADF) (1979, 1981) and Philips-Perron (PP) Unit Root tests (1988) and Lee-Strazicich Unit Root Test (2003) were used for stationarity tests. Regression was used since the variables were determined to be stationary at the level and cointegration could not be obtained. The current account deficit changed by 0.181812 units in the negative direction as a result of a one-unit rise in growth, according to the regression analysis (GDP). Furthermore, it has been shown that if inflation increases by one unit, the current account deficit moves in the positive direction by 0.042096 units. Toda Yamamoto Causality Analysis (1995) was used to investigate short-term causality links, and as a consequence, a two-way relationship between GDP and inflation, one-way from GDP and inflation to current account deficit was discovered.