Measuring fiscal stress via fiscal vulnerability index: a case of Turkish economy

Yusuf Yildirim

International Journal of Emerging Markets, 2023, vol. 20, issue 6, 2545-2558

Abstract: Purpose - This paper aims to develop a compound measure, which is fiscal vulnerability index, provides early warning signals of fiscal sustainability problems for Türkiye's economy. Design/methodology/approach - The index is constructed using twelve distinct fiscal indicators and applying the portfolio method, which considers the time-varying cross-correlation structure between the subindices. Findings - Dynamics of the fiscal vulnerability index indicate that it accurately predicts to the well-known fiscal crisis occurring in Türkiye's recent history. As a result, such a compound measure should be used in the early identification of fiscal vulnerability in Türkiye. Originality/value - The main contribution of this paper, relative to existing papers, is that a fiscal vulnerability index was constructed by employing the most contemporaneous method and evaluating its performance in terms of capturing historical stress periods.

Keywords: Fiscal stress; Fiscal vulnerability; Public debt crises; Portfolio theory; H63; H62; E62; E65; E66 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-10-2021-1638

DOI: 10.1108/IJOEM-10-2021-1638

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