VAR Analysis of The Inflation-Credit Expansion Relationship:An Application on Türkiye

Within the framework of explicit inflation targeting implemented in Turkey since 2006, the main objective of monetary policy is to ensure price stability; following the exchange rate attack and the pandemic in 2018, inflation has been observed to have increased rapidly and clearly diverged from the targeted inflation rates. Especially in the recent period, it has been discussed whether the loans extended to SMEs in addition to credit card expenditures cause demand inflation. For this reason, the extent of the effect of the increase in credit card expenditures and loans extended to SMEs (small and medium-sized enterprises) on inflation has been analyzed within the framework of VAR (Vector Autoregressive) model using the monthly data set for the period 2008:1-2024:6. As a result of the analysis, it has been found that there is a cointegration relationship between the variables in the long run and there is a mutual Granger causality relationship between SME loans and credit card expenditures and inflation; in other words, while SME loans and credit card expenditures are the Granger causes of inflation, it has inflation is also the Granger cause of these two variables. It has also been observed that SME loans are the Granger cause of credit card expenditures. According to the results of the variance decomposition analysis, it has been understood that the effect of the change in credit card expenditures is greater than the effect of the change in SME loans in explaining the change in inflation.