Bahçeşehir University Financial Research and Application Center (BFRC) continues to monitor the relationship between financial conditions and economic activity. According to the results of the latest research note titled ‘Slackening Financial Conditions’, it is observed that the financial conditions, which were in a tightening position in the first three quarters of 2022, reached a supportive position in the last quarter of 2022.
“Financial Conditions Reached Supportive Position in the Last Quarter of 2022”
The Financial Conditions Index (FKE), which is created using various indicators related to financial markets, is regularly updated and monitored by the BFRC. The recent positive FCI presents a positive outlook in terms of economic activity. Looking at the indicators in the FCI, it is seen that the portfolio flows, risk premium, exchange rate and the slope of the yield curve throughout 2022 generally contribute to the index in a tightening (negative) direction.
Looking at the current movements as of December 22, 2022, it is observed that the rapid increase in November and December is due to the increase in stock returns and the real appreciation of the Turkish lira. Considering that historically, changes in financial conditions are an important leading indicator of economic activity, it is thought that economic activity may recover in the first quarter of 2023 with the supportive effect of financial conditions.
Chart 1. Financial Conditions Index (Standardized) and Contributions
Source: Calculations by Bloomberg, CBRT, TurkStat and BFRC.
Notes: FKE below zero indicates firming, above zero indicates supportive.
The 3-month moving average of the series is taken. December 2022 data is current as of the 22nd of the month.
https://drive.google.com/file/d/10kJyRCqiS3xyUq7IJA-3f2uDm3fngqp-/view
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