Banking soundness and financial crises' predictability: a case study of Turkey

Wajih Khallouli () and Mahmoud Sami Nab
Authors registered in the RePEc Author Service: Mahmoud Sami NABI

International Economics, 2013, issue 135-136, 62-78

Abstract: This paper develops an Early Warning System (EWS) based on third-generation mechanism of financial crises using the Markov switching model and a new twin-crisis index. We apply the EWS to Turkey using monthly data ranging between February 1992 and December 2007.We show that the mode captures the two major Turkish financial crises of April 1994 and November 2000/February 2001, and identifies the second one as a twin-crisis. Besides, the model reveals that the financial vulnerability of the Turkish banking system is significant in explaining the triggering of the two financial crises. Furthermore, we show that higher share of banks' assets receivable from the public sector and the interest rate mismatch have the best predictability ability of the twin-crisis over the horizon of 1month.

Keywords: Financial crises; Markov switching regime; Early warning system (search for similar items in EconPapers)
JEL-codes: F31 F37 G01 (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/journal/21107017/135 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cii:cepiie:2013-q3-4-135-136-5

Access Statistics for this article

More articles in International Economics from CEPII research center Contact information at EDIRC.
Bibliographic data for series maintained by ().