An Analysis of Financial Conditions for Turkey: Evidences from Factor and VAR models


AKDENİZ C., ÇATIK A. N.

ESKISEHIR OSMANGAZI UNIVERSITESI IIBF DERGISI-ESKISEHIR OSMANGAZI UNIVERSITY JOURNAL OF ECONOMICS AND ADMINISTRATIVE SCIENCES, cilt.12, ss.99-120, 2017 (ESCI İndekslerine Giren Dergi) identifier

  • Cilt numarası: 12 Konu: 1
  • Basım Tarihi: 2017
  • Dergi Adı: ESKISEHIR OSMANGAZI UNIVERSITESI IIBF DERGISI-ESKISEHIR OSMANGAZI UNIVERSITY JOURNAL OF ECONOMICS AND ADMINISTRATIVE SCIENCES
  • Sayfa Sayıları: ss.99-120

Özet

This paper aims to calculate alternative financial conditions indexes (FCIs) and evaluate the forecasting performance of them for Turkey covering the period 1992:1 and 2015:12. For this purpose, first financial conditions indexes are constructed based on four methodologies: Reduced form demand functions, VAR generalized impulse-response functions, dynamic factor model and factor-augmented VAR models (FAVARs). In the second part of the study the performance of the alternative FCIs are assessed in terms their in-sample and out-of-sample forecasting ability to industrial production gap. The results suggest that the FCI obtained from the homoscedastic FAVAR model provides the best out-of-sample forecasts, hence it is suggested as a leading indicator of economic activity.