INTERACTION OF MACRO FINANCIAL SHOCKS AND BANKING CRISES: CASE OF TURKEY

Abstract

After the 2008 Global Crisis, the impact of macroeconomic and financial variables on financial crises, especially bank crises, has been begun discussed more. The findings of the applied studies show that both macroeconomic fluctuations in financial asset prices and important macroeconomic indicators such as growth and inflation have strong interactions with crises. However, in this context, it is seen that the relationship between macro financial variables and bank crisis is not investigated. Turkey which is an important emerging economies and experienced three major banking crisis in the recent history, creates a suitable example for such a study. In this study, the relations between possible macro financial shocks and bank crises were simulated by using quarterly data between 1986 and 2019, and the existence and strength of interactions were investigated. The BL-VAR model developed from the Qual-VAR model was used as the analysis method. The findings show that there are strong interactions between bank crises and macro financial variables. Bank crises are more strongly affected by shocks in financial variables such as exchange rate, interest rate and stock exchange index. However, it was observed that possible bank crises strongly affected all variables, especially macroeconomic indicators such as growth and inflation. Moreover, these interactions last for a long time.