Accounting for Turkish Business Cycles

We will conduct Business Cycle Accounting for the Turkish economy to investigate the sources of economic fluctuations within the framework of a standard neoclassical growth model with time-varying wedges across the last four decades. We will then compare the relative importance of different wedges: Labor wedge, efficiency wedge, investment wedge, government spending wedge, and trade wedge. Our main finding is that the efficiency and labor wedges generally account for most of the fluctuations in output, consumption, investment and hours of work. We also looked for different factors which could generate the wedges. Our results generally suggest that frictions affecting productivity and imperfections in the labor market are crucial to understand the evolution of the Turkish business cycles. This implies that any model that tries to understand the causes of the recessions occurred in the last few decades in Turkey should focus on the labor and efficiency wedges.