Time-varying Nature of Foreign Portfolio Flows: Evidence from Turkiye

Portfolio flows to emerging market economies are subject to structural shifts and volatility. As a result, constant-parameter econometric models cannot adequately capture their state-dependent behavior. This paper examines how the drivers and macroeconomic impacts of portfolio flows to Türkiye’s equity and debt markets have changed over time. Using a time-varying parameter vector autoregressive (TVP-VAR) model with stochastic volatility estimated over the 2000Q4–2025Q1 period, we document time variation in both determinants and effects of portfolio flows. Our findings indicate that i) the response of debt flows to global (push factors) and domestic shocks (pull factors) increased during times of crises and remains high in recent years, ii) the magnitude of equity flow responses to global risk shocks declined substantially after 2018, except during major stress episodes, iii) the response of real economic activity to debt flow shocks declined over the sample period and became statistically insignificant after 2015, and iv) the response of local currency bond yields to debt flow shocks increased in the post-2013 period. These findings may contribute to the design of macroprudential and portfolio flow management policies in Türkiye and provide useful insights for market participants.