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Cyclical Dynamics of the Turkish Economy and the Stock Market


  • Zeynep Senyuz
  • Emre Yoldas
  • Ismail Onur Baycan


We analyze the cyclical dynamics of the Turkish economy and the stock market as well as their interactions. We use hidden Markov models that are robust to parameter instability arising from major shifts in economic policy, which have been typically observed in the Turkish economy. These models provide estimates of turning points for the growth, business, and stock market cycles. We identify three states of growth cycles and two states of business cycles in Turkey characterized by different mean estimates. We find that the economy went through five recessions since 1987. Crises are characterized by sharp drops in economic activity and are preceded by slowdowns. These crises are typically followed by strong recoveries during which the economy grows above its long-run average rate. We show that the Turkish stock market goes through three regimes having distinct risk-return dynamics. Bear markets associated with negative returns precede every recession with an average lead time of three quarters, suggesting that the stock market may be a useful forward-looking indicator of the Turkish economy.

Suggested Citation

  • Zeynep Senyuz & Emre Yoldas & Ismail Onur Baycan, 2014. "Cyclical Dynamics of the Turkish Economy and the Stock Market," International Economic Journal, Taylor & Francis Journals, vol. 28(3), pages 405-423, September.
  • Handle: RePEc:taf:intecj:v:28:y:2014:i:3:p:405-423
    DOI: 10.1080/10168737.2013.825307

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    References listed on IDEAS

    1. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1, June.
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    Cited by:

    1. Bejaoui, Azza & Karaa, Adel, 2016. "Revisiting the bull and bear markets notions in the Tunisian stock market: New evidence from multi-state duration-dependence Markov-switching models," Economic Modelling, Elsevier, vol. 59(C), pages 529-545.
    2. La Saidi & Pasrun Adam & Rostin & Zainuddin Saenong & Muh. Yani Balaka & Gamsir & Asmuddin & Salwiah, 2017. "The Effect of Stock Prices and Exchange Rates on Economic Growth in Indonesia," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 527-533.

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