An econometric analysis of the factors affecting financialinstability

Considering that financial stability plays a critical role in sustainable growth and economic confidence, identifying the factors that lead to instability is of great importance. Today, imbalances in financial markets can have far-reaching effects, extending to economic policies and even individual well-being. Therefore, a country's economic stability is closely related to the depth of its financial markets.The aim of this study is to analyze the interaction between financial instability indicators and macroeconomic variables, and to reveal the importance of these indicators in terms of macroeconomic balances. In this study, the relationships between financial instability indicators and macroeconomic variables were examined within the framework of time series analysis using quarterly data for the period 2008Q1–2025Q4. Two different models were constructed for the analysis.In the first model, variables such as gross domestic product growth rate, budget balance, consumer price index, producer price index, consumption and saving propensity, current account balance, and total domestic credit volume were used.In the second model, in addition to these variables, total external credit volume and total liquidity in the financial system were also included.In order to determine the dynamic relationships among the variables, a Vector Autoregression (VAR) model was established, and the Toda-Yamamoto causality test was employed to identify causality relationships.The findings indicate that money supply (M2 and M3), inflation indicators (CPI and PPI), and financial depth (DEPTH1, DEPTH2) have significant effects on economic growth.According to the results, the effects of money supply variables on budget balance, current account balance, and financial depth point to the effectiveness of the monetary policy transmission mechanism.The findings reveal the existence of a mutual and comprehensive relationship between financial stability and economic growth, and highlight the importance of coordinated implementation of monetary policy, fiscal policy, and macroprudential policies for policymakers.As a result, the effective use of monetary policy instruments, maintaining inflation under control, and increasing the depth of financial markets are crucial for ensuring financial stability.In this context, policymakers should closely monitor financial instability indicators and develop proactive and coordinated policies.