Measuring the optimal macroeconomic uncertainty index for Turkey

Abstract

The aim of this study is to calculate the optimal macroeconomic uncertainty index for the Turkish economy. The data used in the study are quarterly and cover the period 2002-2014. In this study the index is formed based on the small structural macroeconomic model. The study uses three important econometric processes. First, the model is estimated separately using generalized method of moments (GMM), seemingly unrelated regressions (SUR), and ordinary least squares (OLS). Secondly, the Broyden-Fletcher- Goldfarb-Shanno (BFGS) algorithm is applied as an optimization algorithm. The BFGS algorithm calibrates the model using GMM, SUR, and OLS parameter estimations of the benchmark parameters. Next, the index variables are weighted under the estimated optimal coefficients and, finally, are aggregated to produce the optimal macroeconomic uncertainty index.

Keywords

• macroeconomic uncertainty
• optimal macroeconomic uncertainty index
• BFGS algorithm
• GMM
• SUR