OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
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Advance Warning Indicators of Past Severe GDP per Capita Recessions in Turkey
The global financial crisis and its high economic and social costs have revived academic and policy interest in “early warning indicators” of crises. This paper aims to investigate the performance of vulnerability indicators as advance warning indicators of past severe GDP per capita recessions in Turkey. It draws on the recently established database of vulnerability indicators (Röhn et al., 2015) and employs the signalling approach as in Hermansen and Röhn (2015) complemented by visual inspections to detect vulnerability indicators that performed particularly well in the Turkish context. The evidence suggests that an index of the global stock market performs extremely well in the Turkish context. This index, which could be interpreted as a proxy for the risk appetite of global investors, exceeded its critical threshold before almost all past severe GDP per capita recessions in Turkey while sending only very few false alarms. Among domestic indicators, large positive deviations of household credit and the domestic stock market from trend also perform relatively well in signalling subsequent past severe GDP per capita recessions. The evidence is broadly robust to considering a more homogenous set of lower income OECD countries when defining the critical thresholds.
Keywords: resilience, recession, imbalances, crisis
E51: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Money Supply; Credit; Money Multipliers;
O5: Economic Development, Innovation, Technological Change, and Growth / Economywide Country Studies;
F47: International Economics / Macroeconomic Aspects of International Trade and Finance / Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation: Models and Applications;
E32: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Business Fluctuations; Cycles;
E44: Macroeconomics and Monetary Economics / Money and Interest Rates / Financial Markets and the Macroeconomy