Forecasting Banking crises using the Markov model: an applied study in Turkey for the period (2000-2023)

Abstract

The objective of the research is to predict banking crises through a series of historical data of a range of financial and economic variables in Turkey and to test a proposed prediction model represented in the Markov model of system replacement (Markov-Switching) to reach the possibility of generating accurate predictive signals capable of predicting future crises. Forecasting models may have been and continue to be intellectual and applied debates about the relevance and preference of these models for predicting banking crises, especially after traditional warning models failed to predict the global financial crisis (2008).

So this research came to see this argument and try to solve it by testing the Markov model to switch the system in the light of the data obtained for the sample study and using quarterly data for the duration of the (first quarter of 2000) until (first quarter of 2023), using many financial, statistical and sporting methods, the study concluded a number of conclusions, perhaps the most important of which is that Markov's model of system replacement is strong as an indicator for predicting banking crises. He could generate a higher probability of crisis. Furthermore, the analysis within the sample indicates that these indicators could provide a prediction signal of up to several quarters prior to the change of the system in question. The study produced a number of recommendations, perhaps most important of which is the need to adopt the Markov model as a forecasting model as a result of its accuracy in predicting banking crises