Timeseries Analysis of the Financial Liberalization and Pre-Crisis Indicators in Turkish Economy

Abstract

In our study, the selected financial liberalization and pre-crisis indicators which is inspired by the work of Kaminsky, Lizondo and Reinhart known as KLR approach is analyzed. For Turkish economy, the completion of the financial liberalization process in the time interval after 1989, the effects of shock, causality relationship and interact with each of these indicators is surveyed through the VAR model and Toda-Yamamoto test. The purpose of this study to show that financial liberalization indicators of
hot money movements, real interest rates and credit growth triggered the crisis which were experienced in Turkey after 1989 by adversely effecting the pre-crisis indicators. In addition to this purpose, the most effective indicators of financial liberalization on pre-crisis indicators will be determined for Turkish economy. According to VAR model and Toda-Yamamoto causality test, the negative impact on the pre-crisis indicators, description of these indicators percentage and the causality relationship of hot money movements and real interest rates are more than the credit growth. The results will give ideas on policy makers in Turkey about the effectiveness of the financial liberalization in economic crises.