Has The Turkish Economy Experienced a Contagion Effect From The Global Financial Crisis?

Abstract

This study examines whether the Turkish financial market experienced a contagion effect from the 2007-2008 global financial crisis. Stock, foreign exchange, and interest rate markets are all considered as potential transmission channels. The dynamic daily and weekly time-varying conditional correlations are estimated using the AR(p)-DBEKK-GARCH(1,1) and AR(p)-SBEKK-GARCH(1,1) models. Results clearly show that the US financial crisis was transmitted to the Turkish economy through the stock market channel, with no significant contagion effect found between the US and Turkish foreign exchange and interest rate markets. So, when the general structure of the Turkish economy is considered, these results imply that the US financial crisis spread to the Turkish economy through a channel considered to be less harmful than others.