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Transmission mechanisms of financial stress into economic activity in Turkey

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  • Polat, Onur
  • Ozkan, Ibrahim

Abstract

Measuring, analyzing and understanding systemic risk in financial system have become very important in the light of the recent global crisis. In this study, we follow Holló, Kremer, and Lo Duca (2012) and evaluate systemic stress of financial system of Turkey with a high frequency (daily) financial stress index which consists of daily 13 financial market indicators. Dynamics of the financial stress index indicate that the index creates proper signals to the well-known financial stress events. The dynamic interaction between financial stress and real economic activity is investigated with application of structural VAR (SVAR) model. Results of the study suggest that deterioration of financial conditions impacts real economic activity significantly and adversely.

Suggested Citation

  • Polat, Onur & Ozkan, Ibrahim, 2019. "Transmission mechanisms of financial stress into economic activity in Turkey," Journal of Policy Modeling, Elsevier, vol. 41(2), pages 395-415.
  • Handle: RePEc:eee:jpolmo:v:41:y:2019:i:2:p:395-415
    DOI: 10.1016/j.jpolmod.2019.02.010
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    More about this item

    Keywords

    Financial Stability; Financial Stress Index; Systemic Risk;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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