Financial conditions and economic activity: The case of Türkiye

This study conducts a comprehensive analysis of the effects of changes in financial conditions on the economy of Türkiye, for which financial conditions indices were constructed. To examine possible changes in the relationship between financial conditions and the real economy due to the unique nature of the COVID-19 pandemic, the impacts of financial conditions on the economy were analyzed separately for 2005–2019 and 2005–2023. The impulse response analyses revealed that changes in financial conditions had significant effects on macroeconomic aggregates from 2005 to 2019. However, these effects became insignificant when the analysis was extended to 2023. This change is interpreted with caution. Deepening the analysis with financial conditions indices obtained from different data groups revealed that risk perception-based variables played a relatively important role until 2019.