IS SYSTEMIC RISK A CONSEQUENCE? THE ROLE OF MACRO-FINANCIAL SHOCKS IN TÜRKİYE

Abstract

This study aims to analyze the dynamic interactions between macro-financial shocks and systemic risk in the Turkish banking sector. Within this scope, a Factor-Augmented Structural VAR (FASVAR) model is employed to incorporate a comprehensive information set reflecting systemic risk and to decompose the structural relationships between variables. The systemic risk indicator is constructed through a factor model encompassing key balance sheet ratios and the credit cycle of the banking sector. The analysis is conducted using monthly data for the period 2005:01–2026:01. Empirical findings indicate that exchange rate and interest rate shocks exert potent and statistically significant effects on systemic risk. Specifically, it is observed that exchange rate shocks trigger an immediate and substantial increase in systemic risk, while interest rate shocks produce more lagged but persistent effects. Conversely, the impact of systemic risk shocks on industrial production, inflation, and interest rates is found to be limited and short-lived. These findings suggest that systemic risk in Türkiye emerges largely as a consequence of macro-financial imbalances. Variance decomposition results further confirm that the primary determinants of systemic risk are exchange rates and interest rates. On the other hand, the effects of rising systemic risk on real economic activity are determined to be quite weak. This situation indicates that risks accumulating within the financial system are not directly or strongly transmitted to the real sector. It can be concluded that while volatility in financial markets is the main source of risk for the banking sector, this is not immediately passed through to the real economy. These results highlight the necessity of controlling exchange rate volatility, considering the financial implications of interest rate policies, and strengthening the coordination between macroprudential and monetary policies to ensure financial stability in Türkiye.