Regression tree analysis of effects of energy prices on Turkish current account deficit

Today, some worldwide negative speculative developments variably increase the energy prices. For developing countries whose economic growth substantially depends on energy import, especially on oil-import, an increase in energy prices will negatively affect the cost of import, hence will lead to current account deficits. Accordingly, this study examines the effect of energy prices on current account deficit in Turkey. A non-parametric Regression Trees technique is used. Differing from classical estimation techniques, Regression Trees can effectively differentiate the effects of interactions between the time and the energy prices, as well as other macroeconomic variables such as economic growth and exchange rates, on the current account deficit. Analysis results show that energy prices negatively affect the current account, indicating that energy price shocks do not have recessionary effect on economy, before the time period 2003:11, and the exchange rates become the most significant explanatory variable for the time period after 2003:11 and need to be considered more seriously.