Measuring Systemic Stress in Emerging Markets: Socioeconomic Challenges for Financial and Real Sectors

Addressing socioeconomic challenges has become a central concern for emerging market economies, where financial instability can rapidly spill over into the real economy and undermine sustainable development. This paper develops novel stress indices for Türkiye’s financial institutions, financial markets, and real economy using three widely applied methodologies: equal variance weighting, principal component analysis, and portfolio theory (CISS). By constructing sector-specific and aggregate indicators, the study provides a comprehensive framework for monitoring financial stress in an emerging market context. The proposed indices are further evaluated using discrete choice models to assess their ability to signal periods of elevated financial vulnerability. This research makes three main contributions. First, it extends the financial stress literature by developing a multi-dimensional stress measurement framework that integrates financial institutions, financial markets, and the real economy for an emerging market economy. Second, it offers a systematic comparison of alternative aggregation methodologies, highlighting their relative strengths for different types of stress episodes. Third, it provides policy-relevant tools that can support macroprudential surveillance and early-warning systems. Overall, the study underscores how tailored stress indicators can contribute to more effective economic policy design and help address socioeconomic challenges arising from financial instability.