Forecasting the Growth Cycles of the Turkish Economy

Forecasting the Growth Cycles of the Turkish Economy

17/15

July 2017

This paper first specifies the medium-term growth cycles for the Turkish economy. The impact of the frequency transformation methods and the time-serious filters on cycles and potential output are discussed. Then a composite leading indicator (CLI) is constructed that is correlated with the third lead of the GDP with a coefficient of 0.9. The CLI signals 11 out of 13 turning points in the Turkish growth cycle in the 1993-2016 period. The CLI is coincident with the remaining two turning points, hence still providing early warning. Within the same period, only two false signals are generated by the CLI. Finally, building on the seminal paper by Neftci (1982), a method for computation of the turning point probabilities is developed. The virtue of the method is that it takes into account the observed deepness and steepness in the series.