Predicting Regimes of the Economic Performance Index with Markov-Switching Model: The Case of Turkey

Abstract

The aim of the study is to investigate the economic performance of Turkey for quarterly periods for the 2000Q1-2021Q1 period using the Markov-Switching Model. In the study, economic performance is measured using the Economic Performance Index (EPI) (consisting of inflation rate, unemployment rate, the budget deficit as a percentage of total GDP and the change in real GDP variables) as proposed by Khramov and Lee (2013). As a result of the study, four-regime results were obtained for different periods according to the EPI values of Turkey. The corresponding regimes are designated as Excellent, PoorD+, PoorD- and Fail. Turkey has reached the EPI value of Excellent for 5 terms and Fail for 19 terms. The periods where Turkey achieved the value of Excellent are 2006Q2, 2008Q2, 2011Q2, 2013Q2 and 2015Q2. When the findings are considered, it can be stated that the Turkish economy has a fragile structure.