BFRC Publishes "What Do Financial Conditions Tell Us?" Study

The Bahçeşehir University Financial Research and Application Center (BFRC) has created a composite indicator of financial conditions and published a study on the relationship of the index with economic activity.
According to the results of the study titled "What Do Financial Conditions Tell Us?", the tightening trend observed in financial conditions in 2022 confirms the moderate slowdown trend in economic activity indicators since mid-2022 and points to the continuation of this trend in the coming period.

"There Are Signs of a Moderate Slowdown in Economic Activity in the Second Half of 2022"

The study first draws attention to the need for "financial conditions to be supportive" in terms of the industrial production and employment outlook, which the Central Bank of the Republic of Türkiye (CBRT) has presented as a justification for interest rate cuts in its Monetary Policy Committee (MPC) decision texts since August 2022. It then sets out the signs of a moderate slowdown in various economic activity indicators (industrial production, employment and manufacturing PMI) since mid-2022.

"The Decline in the Index Shows That the Slowdown in Economic Activity May Extend into 2023"

The study first constructs a Financial Conditions Index (FCI) using various financial indicators including equity, bond and foreign exchange markets, portfolio flows and the risk premium. The index shows that financial conditions have been on a tightening trend since the end of 2021. According to the findings of the study, historically, apart from the period of temporary fluctuation caused by the pandemic, the FCI leads industrial production by about 5 months. In this context, the continued tightening trend in financial conditions as of September 2022 indicates that the slowdown trend in economic activity may extend into 2023.

BFRC will continue to present its research results regularly in the coming period so that the relationship between financial conditions and economic activity can be assessed on an up-to-date basis.

To access the full study, click here.