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Construction of an economic activity indicator for Turkey

Çelgin, Aysu
In this thesis, a monthly economic activity indicator is constructed for the Turkish economy for the period 1988-2020. Dynamic factor modelling framework is utilized in the estimation of the indicator because of being good at synthesizing macroeconomic variables into an indicator. Variables used in the estimation of the indicator are industrial production index, electricity production, total vehicles production, the volume of production over the past 3 months, real sector confidence index, import volume index, non-farm employment, credit stock, CDS and GDP. Data selection is done with the help of the hard-thresholding method. In this context, first of all, the variables are categorized into five types as: activity (hard data), activity (survey-based data or soft data), trade, employment and financial variables. After determining the candidate variables for each category, data selection is finalized by using the hard-thresholding method. The results indicate that our monthly economic activity indicator is successful in detecting the past recessionary periods of the Turkish economy and providing timelier information about the course of economic activity.