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Monetary Policy and Credit Cards: Evidence from a Small-Open Economy

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Listed:
  • Hakan Yilmazkuday

    () (Department of Economics, Temple University)

Abstract

This paper uses a unique monthly data set that covers overall credit card usage in a small-open economy, Turkey, to investigate a possible credit channel of monetary policy transmission through credit cards. A reduced-form vector autoregression analysis is employed where the forecast error variance decompositions are calculated for three-year windows over the period 2002-2009. It is shown that, during the recent financial crisis that has started in 2007, the monetary policy of Turkey has shifted toward focusing on output volatility and interest-rate smoothing through setting short-term interest rates, while the inflation rate has been mostly affected by exchange rate movements and inflation inertia. Credit cards usage has an increasing effect on inflation rates through time, requiring more policy emphasis on the credit channel through credit cards. When the effects of the credit view and the money view are compared, the former seems to be more effective on the real side of the economy independent of the level of inflation.

Suggested Citation

  • Hakan Yilmazkuday, 2010. "Monetary Policy and Credit Cards: Evidence from a Small-Open Economy," DETU Working Papers 1010, Department of Economics, Temple University.
  • Handle: RePEc:tem:wpaper:1010
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    File URL: http://www.cla.temple.edu/RePEc/documents/detu_10_10.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Credit Cards; Monetary Policy; Credit Channel; Vector Autoregression; Turkey;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - 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

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