Transmission channel of global macrofinancial shocks to Turkish economy: Global VAR approach

In this study, the effects of the economic shocks that emerged globally and cause a financial crisis on Turkish economy, their transmission and spillovers from trade channel are analyzed by using data between 1980-2013 periods. During this period, different crisis processes has emerged in the World economy. In order to conduct an analysis that covers these crisis processes; theoretical approaches to explaining each process were examined and explained. Thus, an empirical application is done based on the theoretical approach that can cover the entire period. A system analysis results are obtained for the global macro-financial shocks spillover from trade channel directly and financial channel indirectly. Effects of the international shocks are demonstrated in the frame of "sudden stop" variable as a determinant of the process that international shocks becoming crisis and functioning of financial multiplier mechanism. Especially due to size and severity of the response of this variable to the changes in international asset prices is an indicator of durability of the countries against external shocks, results about shock transmission and spillover speed were obtained. In this study, an empirical analysis on the financial multiplier mechanism of international transmission mechanism is conducted based on Krugman's definition. Besides international asset prices are evaluated as equity price index of USA. The possible effects of these international prices on balance sheets are represented by sudden stop variable based on the countries in question. GVAR approach is used for the application of this study. This approach allows analyzing the shocks transmissions between countries by means of impulse-responses analysis. Therefore, 17 developed and developing countries' quarterly data belongs to 1980-2013 period is analyzed by this approach. In the end of the analysis, as a developing country, it is found that Turkish economy has a fragile economic structure and its economy more affected by the global shocks compared to country based shocks. For the selected period it is concluded that the effects of the global macro-financial shocks on Turkey emerged from the financial channel. Keywords: Financial Crises, Real and Financial Channel of Shocks, Financial Multiplier Mechanism, Global VAR.