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The Bank Lending Channel of Monetary Transmission: Does It Work in Turkey?

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  • Petya Koeva Brooks
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    Abstract

    Does the bank lending channel of monetary transmission work in Turkey? Using the May- June 2006 financial turbulence as an exogenous shock that prompted a significant tightening of monetary policy, this paper examines the loan supply response of Turkey's banks, depending on their balance sheet characteristics. The empirical results indicate that banks can play a role in Turkey's monetary transmission mechanism. Specifically, bank liquidity is found to have a significant effect on loan supply in Turkey. This suggests that the effect of monetary policy in Turkey can be propagated by the banking sector, depending on its liquidity position.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/272.

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    Length: 70
    Date of creation: 01 Dec 2007
    Date of revision:
    Handle: RePEc:imf:imfwpa:07/272

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    Keywords: Liquidity; Interest rates on loans;

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    1. Luísa Farinha & Carlos Robalo Marques, 2002. "The bank lending channel of monetary policy: identification and estimation using Portuguese micro bank data," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 A4-3, International Conferences on Panel Data.
    2. Adam B. Ashcraft, 2001. "New evidence on the lending channel," Staff Reports 136, Federal Reserve Bank of New York.
    3. Favero, Carlo A & Flabbi, Luca & Giavazzi, Francesco, 1999. "The Transmission Mechanism of Monetary Policy in Europe: Evidence from Banks' Balance Sheets," CEPR Discussion Papers 2303, C.E.P.R. Discussion Papers.
    4. Halil Ibrahim Aydin & Cafer Kaplan & Mehtap Kesriyeli & Erdal Ozmen & Cihan Yalcin & Serkan Yigit, 2006. "Corporate Sector Financial Structure in Turkey : A Descriptive Analysis," Working Papers 0607, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    5. Chmielewski, Tomasz, 2005. "Bank risks, risk preferences and lending," MPRA Paper 5131, University Library of Munich, Germany, revised 15 Jan 2006.
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