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Interest Rate Corridor : A New Macroprudential Tool?

Author

Listed:
  • Mahir Binici
  • Hasan Erol
  • A. Hakan Kara
  • Pinar Ozlu
  • Deren Unalmis

Abstract

The procyclical behavior of credit supply amplifies the business cycles. One of the aims of the traditional macro-prudential policies is to smooth the business cycle fluctuations by mitigating the excessive volatility in the risk appetite of financial intermediaries. This study shows that asymmetric interest rate corridor, a new policy instrument designed by CBRT, can be used for such a purpose. In this respect, this study focuses on the interaction of the interest rate corridor with the credit-deposit spread which is an important indicator of banks’ appetite for lending and hence credit supply. Our findings suggest that through the use of an asymmetric corridor policy together with an active liquidity management strategy, monetary policy is able to affect credit and deposit rates via different channels. Therefore, the interest rate corridor can be used to adjust the credit spread, and hence has the potential to be used as a macro-prudential policy tool.

Suggested Citation

  • Mahir Binici & Hasan Erol & A. Hakan Kara & Pinar Ozlu & Deren Unalmis, 2013. "Interest Rate Corridor : A New Macroprudential Tool?," CBT Research Notes in Economics 1320, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:econot:1320
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    References listed on IDEAS

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    Cited by:

    1. repec:cbk:journl:v:6:y:2017:i:2:p:45-64 is not listed on IDEAS
    2. Hakan Kara, 2016. "A brief assessment of Turkey's macroprudential policy approach : 2011–2015," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 16(3), pages 85-92.
    3. repec:bis:bisbpc:94-27 is not listed on IDEAS
    4. Koray Alper & Mahir Binici & Selva Demiralp & Hakan Kara & Pinar Ozlu, 2014. "Reserve Requirements, Liquidity Risk, and Credit Growth," Koç University-TUSIAD Economic Research Forum Working Papers 1416, Koc University-TUSIAD Economic Research Forum.
    5. Ahmet Aysan & Salih Fendoglu & Mustafa Kilinc, 2014. "Managing short-term capital flows in new central banking: unconventional monetary policy framework in Turkey," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 4(1), pages 45-69, June.
    6. repec:spr:pharme:v:4:y:2014:i:1:p:45-69 is not listed on IDEAS
    7. repec:bis:bisbps:94 is not listed on IDEAS
    8. Hande Küçük & Pinar Özlü & İsmaİl Anil Talaslı & Deren Ünalmış & Canan Yüksel, 2016. "Interest Rate Corridor, Liquidity Management, And The Overnight Spread," Contemporary Economic Policy, Western Economic Association International, vol. 34(4), pages 746-761, October.
    9. repec:agr:journl:v:4(605):y:2015:i:4(605):p:133-144 is not listed on IDEAS
    10. repec:agr:journl:v:4(605):y:2015:i:4(605):p:135-146 is not listed on IDEAS
    11. Umit BULUT, 2015. "The Interest Rate Corridor as a Macroprudential Tool to Mitigate Rapid Growth in Credits: Evidence from Turkey," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(605), W), pages 133-144, Winter.
    12. Hakan Kara, 2016. "Turkey's experience with macroprudential policy," BIS Papers chapters,in: Bank for International Settlements (ed.), Macroprudential policy, volume 86, pages 123-139 Bank for International Settlements.
    13. Koray Alper & Mahir Binici & Selva Demiralp & Hakan Kara & Pınar Ozlu, 2016. "Reserve Requirements, Liquidity Risk, and Bank Lending Behavior," Koç University-TUSIAD Economic Research Forum Working Papers 1612, Koc University-TUSIAD Economic Research Forum.
    14. Salih Fendoglu & Mustafa Kilinc & Mehmet Yörükoglu, 2014. "Cross-border portfolio flows and the role of macroprudential policies: experiences from Turkey," BIS Papers chapters,in: Bank for International Settlements (ed.), The transmission of unconventional monetary policy to the emerging markets, volume 78, pages 347-359 Bank for International Settlements.
    15. Bank for International Settlements, 2014. "The transmission of unconventional monetary policy to the emerging markets," BIS Papers, Bank for International Settlements, number 78, November.
    16. Oduncu, Arif & Ermişoğlu, Ergun & Polat, Tandogan, 2013. "Credit Growth Volatility," MPRA Paper 49058, University Library of Munich, Germany.

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