IMPACT OF CREDIT EXPANSION ON ECONOMIC ACTIVITY IN TURKISH ECONOMY

Year 2019, Issue: 38, 279 - 292, 31.12.2019

Sule Gunduz , Burçak Müge Tunaer Vural

https://doi.org/10.35343/kosbed.645777

Abstract

Monetary
policy regaining popularity post 2008 period, massively increased the balance
sheets of Turkish Central Bank balance sheet al well by 348 per cent from 2010
until 2019. Disconnect between Turkish macroeconomic growth and the monetary
base, however, increases the question on effectiveness of monetary policy
implemented by the Turkish Central Bank. Main purpose of this research is to
investigate the effectiveness of monetary policy. To this end, we implement an
empirical analysis of the relationship between monetary policy, bank loans and
economic activity.  Findings reveal that
the monetary transmission mechanism through bank lending channel is not
effective in Turkey. Monetary policy shifts change loan supply. Yet, the production remains unresponsive
to the changes in interest rates, rendering monetary policy ineffective.
Despite increasing loan supply, gross domestic product does not increase
significantly. By the same token, contractionary monetary policy shifts do not
hold the inflation down.

Keywords

Monetary transmission mechanism, Bank-lending channel, Impulse Response

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