Forecasting of Financial Crises: An Empirical Model for Turkey

The world has suffered from different financial crises since the Great Depression of the 1930s. In particular, a number of broad types of financial crises have occurred in not only developed economies but also developing economies last 30 years. The prediction of the financial crises can have substantial value to policy makers by allowing them to detect underlying economic weaknesses and vulnerabilities. In the wake of such developments, forecasting such crises has paid great attention to the literature. Using Arima model, this study explores the forecast of financial vulnerability for Turkey, the period of January 1990-December 2010. Experimental results reveal that export, net international reserves and, total deposits in banks are the most important determinants of financial vulnerability. These variables should be observed very closely by policy makers to be prepared against such crisis.