Optimal growth under military threat

National Defense is a public good that requires resources for its production and its availability affects the economic behavior of private agents. A major policy problem of the government is to find an optimal allocation of resources between private use and national defense. It is shown that, in a simple optimal growth framework, a government's solution may not be the one that satisfies the military authority's objective. Attention is drawn to the need of cooperation between these two bodies and to the importance of the transparency of military expenditures in reaching a compromise that satisfies the public

Foreign exchange regime, the real exchange rate and current account sustainability: The case of Turkey

During the last two and half decades Turkey has suffered from three foreign exchange crisis resulting in considerable loss of income. The paper argues that the country in order to avoid the foreign exchange crisis has to stay away from having too big current account deficits. Noting that under perfect capital mobility there will always be the unavoidable risk of speculative attacks on the currency unless the country resolves its fiscal problems, attains price stability, and achieves a sound banking sector, the paper stresses importance of current account sustainability and highlights shortcomings of current policies pursued by Turkey. --Current account sustainability,Turkey