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An Empirical Analysis of the Bank Lending Channel in turkey

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  • Ekin Ayse Ozsuca

    ()
    (Department of Economics, Cankaya University)

  • Elif Akbostanci

    ()
    (Department of Economics, METU)

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    Abstract

    This paper studies the role of banking sector in monetary policy transmission in Turkey covering the period 1988-2009. Specifically, we investigate the impact of monetary policy changes on banks’ lending behavior. Given the changes in the policy stance and developments in the financial system following the implementation of structural reforms in the aftermath of the 2000-01 crisis, the analysis is further conducted for the two sub-periods: 1988-2001 and 2002-2009, to examine whether there is a change in the functioning of the credit channel. Based on bank-level data, empirical evidence suggests cross sectional heterogeneity in banks’ response to monetary policy changes during 1988-2009. Regarding the results of the pre-crisis and post-crisis periods, we find that an operative bank lending channel existed in 1988-2001, however its impact became much stronger thereafter. Furthermore, there are significant differences in the distributional effects due to bank specific characteristics in the impact of monetary policy on credit supply between the two sub-periods. While the results indicate an operative bank lending channel due to earnings capability and asset quality in the first period, size, liquidity, capitalization, asset quality and managerial efficiency seem to make a difference in the lending responses of banks to monetary policy in 2002-2009.

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    File URL: http://www.erc.metu.edu.tr/menu/series12/1205.pdf
    File Function: First version, 2012
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    Bibliographic Info

    Paper provided by ERC - Economic Research Center, Middle East Technical University in its series ERC Working Papers with number 1205.

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    Length: 33 pages
    Date of creation: Aug 2012
    Date of revision: Aug 2012
    Handle: RePEc:met:wpaper:1205

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    Keywords: Monetary policy; Transmission Mechanisms; Bank lending channel; Turkey; Panel Data;

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    1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
    2. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-39, May.
    3. Juurikkala, Tuuli & Solanko, Laura & Karas, Alexei, 2009. "The role of banks in monetary policy transmission: Empirical evidence from Russia," BOFIT Discussion Papers 8/2009, Bank of Finland, Institute for Economies in Transition.
    4. Ben S. Bernanke & Alan S. Blinder, 1989. "The federal funds rate and the channels of monetary transmission," Working Papers 89-10, Federal Reserve Bank of Philadelphia.
    5. Anil K Kashyap & Jeremy C. Stein & David W. Wilcox, 1992. "Monetary Policy and Credit Conditions: Evidence From the Composition of External Finance," NBER Working Papers 4015, National Bureau of Economic Research, Inc.
    6. Gambacorta, Leonardo, 2005. "Inside the bank lending channel," European Economic Review, Elsevier, vol. 49(7), pages 1737-1759, October.
    7. Burcu Aydin & Deniz Igan, 2010. "Bank Lending in Turkey," IMF Working Papers 10/233, International Monetary Fund.
    8. Leonardo Gambacorta & David Marques‐Ibanez, 2011. "The bank lending channel: lessons from the crisis," Economic Policy, CEPR & CES & MSH, vol. 26(66), pages 135-182, 04.
    9. Kishan, Ruby P & Opiela, Timothy P, 2000. "Bank Size, Bank Capital, and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 121-41, February.
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