Composing a high-frequency financial conditions index and the implications for economic activity

A Kazdal*, HI Korkmaz, MH Yilmaz

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review


    In this study, we construct an index using high-frequency data related to financial markets and intermediation services in Turkey, called the High-Frequency Financial Conditions Index, employing alternative statistical techniques for the period from 2006 to 2020. We also analyze the informative nature of the indices constructed with respect to the course of economic activity. Additionally, we perform a detailed empirical analysis of the relationship between financial conditions and growth tendencies. The results of the time-series analysis show that the series constructed are quite informative for monitoring economic activity. In this context, probit model estimations indicate that the index constructed can be used as an early indicator to predict “loss of momentum” episodes in economic growth, taking the lead-lag relationship into consideration. When a similar methodology is applied to emerging market economies, indices exhibit a high level of comovements with growth indicators. Panel vector autoregression estimation shows that, after country-specific characteristics are controlled for, a shock to financial conditions facilitates a significant response in the growth rates of emerging market economies. In terms of policy making, the indices can contribute to a better understanding of the financial outlook and its interaction with economic activity.
    Original languageEnglish
    Pages (from-to)769-779
    Number of pages11
    JournalBorsa Istanbul Review
    Issue number4
    Early online date28 Jan 2022
    Publication statusPublished - 1 Jul 2022


    • Economic growth
    • Factor analysis
    • Financial conditions
    • Panel VAR
    • Probit


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