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Macroeconomic effects of bank lending in an emerging economy: Evidence from Turkey

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  • Büyükbaşaran, Tayyar
  • Karasoy-Can, Gökçe
  • Küçük, Hande

Abstract

Credit policies have been increasingly used by many emerging economies to support economic activity during downturns, more recently in response to the COVID-19 pandemic. Macroeconomic effects of credit expansions are well studied, but less is known about how they vary depending on their drivers. Drawing on the Turkish experience, we contribute to the literature by identifying credit supply shocks driven by domestic factors, including credit policies, while controlling for the effects of global factors. According to our vector autoregression (VAR) estimations, domestically driven credit expansions are accompanied by a depreciated currency and higher inflation, limiting the scope for accommodative monetary policy and restricting the growth impact. We show that shocks that lead to currency appreciation, which indirectly captures capital inflows, are also important drivers of credit expansions but with different macroeconomic effects: stronger currency leads to lower inflation; hence, monetary policy accommodates the credit expansion, leading to a larger and longer-lived GDP response.

Suggested Citation

  • Büyükbaşaran, Tayyar & Karasoy-Can, Gökçe & Küçük, Hande, 2022. "Macroeconomic effects of bank lending in an emerging economy: Evidence from Turkey," Economic Modelling, Elsevier, vol. 115(C).
    • Handle: RePEc:eee:ecmode:v:115:y:2022:i:c:s0264999322001924
    DOI: 10.1016/j.econmod.2022.105946
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    More about this item

    Keywords

    Bayesian VAR; COVID-19; Credit supply shocks; Sign and zero restrictions; Structural VAR;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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