| Abstract: | This study investigates the economic interdependence between Turkey and the European Union (EU). The main questions addressed are (i) Do Turkish and European business cycles move together? and (ii) Are European business cycles transmitted to Turkey? This investigation is important as Turkey seeks to become a full member of the EU. Trade flows, graphs, correlations, and a principal-components analysis are used to identify possible macroeconomic interdependence and transmissions. A structural vector autoregression (SVAR) model is estimated to determine the effects of European economic fluctuations on the Turkish economy. The SVAR includes GDP, consumer prices, money supplies, interest rates, and the exchange rate for Turkey and Germany. The investigation finds that Turkey's economy is only modestly influenced by European business cycles and is largely determined by domestic economic and political developments and various regional conflicts. The findings of this study have implications for Turkey's increasing economic integration into the EU. |
