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Measuring fiscal stress via fiscal vulnerability index: a case of Turkish economy

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  • Yusuf Yildirim

Abstract

Purpose - This paper aims to develop a compound measure, which is fiscal vulnerability index, provides early warning signals of fiscal sustainability problems for Türkiye's economy. Design/methodology/approach - The index is constructed using twelve distinct fiscal indicators and applying the portfolio method, which considers the time-varying cross-correlation structure between the subindices. Findings - Dynamics of the fiscal vulnerability index indicate that it accurately predicts to the well-known fiscal crisis occurring in Türkiye's recent history. As a result, such a compound measure should be used in the early identification of fiscal vulnerability in Türkiye. Originality/value - The main contribution of this paper, relative to existing papers, is that a fiscal vulnerability index was constructed by employing the most contemporaneous method and evaluating its performance in terms of capturing historical stress periods.

Suggested Citation

  • Yusuf Yildirim, 2023. "Measuring fiscal stress via fiscal vulnerability index: a case of Turkish economy," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 20(6), pages 2545-2558, November.
    • Handle: RePEc:eme:ijoemp:ijoem-10-2021-1638
    DOI: 10.1108/IJOEM-10-2021-1638
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    More about this item

    Keywords

    Fiscal stress; Fiscal vulnerability; Public debt crises; Portfolio theory; H63; H62; E62; E65; E66;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions

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