Fiscal Policy and Financial Cycles: Evidence From Türkiye in the Post-Global Financial Crisis

Abstract

This study aims to investigate the relationship between fiscal policy and financial cycles. It employs the structural-VAR model with data for the period of 2010:January-2023:March of the Turkish economy. For this purpose, firstly, financial cycle indices are calculated with three different weighting methods using variables related to the credit market, stock market, and housing market. Tax revenues and industrial production index are used to represent fiscal policy and business cycles, respectively. According to the impulse-response functions obtained from the structural VAR model, a positive shock in financial cycles causes a positive reaction in fiscal policy in the short term. Similarly, financial cycle shock also affects business cycles positively.