According to leading indicators approach, financial crisis and the case of Turkey

Since the times of 1800s, which the economic literature started to appear, financial crises have been a subject of research. And economists have tried to understand and explain of these crises. As a result of theoretical studies made up to now, a wide literature of theories of crises has been formed. The literature has been growing continuously with the help of new studies and with the objects of changes in world economy. As a result, it has been update and fresh.The objective of the thesis is to develop on early warning system to predict the financial crisis in Turkish economy likely to happen by using both Kaminsky, Lizondo and Reinhart (KLR) Model and relatively new Artificial Neural Networks (ANN) Model together. In the study, a data set covering the period of January 1992 - March 2011 of Turkish economy being used, an early warning system has been developed with KLR and YSA models. Financial Pressure Index (FPI), which is a result of calculation of percentage changes in dollar exchange rate, overnight interest rate and gross foreign exchange reserves of the Central Bank is used as the dependent variable, while thirty-two macro-economic indicators are used as the independent variables. Two models which are tested in Turkish case have given clear signals anticipating 1994 and 2001 crises 12 months before.