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An Investigation on the Relationship Between Credit Volume and Current Account Deficit in Turkey

Author

Listed:
  • Atış, Aydanur Gacener

    (Ege University)

  • Saygılı, Fatih

    (Ege University)

Abstract

Following the 2008 global financial crisis, Turkey’s current account deficit has deteriorated due to a rapid growth of total credit volume and the appreciation of domestic currency. In 2010, the Central Bank of Turkey implemented a new monetary policy to improve domestic financial stability. The new policy was designed to maintain a sustainable current account deficit by reducing total domestic credit volume. The aim of this paper is to explore the impact of the domestic credit volume on Turkey’s current account deficit. The relationship between the credit growth and current account is analyzed by using quarterly data over the period 1998:1-2013:1. An econometric VECM technique and Granger Causality tests are used to analyze and to detect the long-run relationship between variables. Our findings indicate that the total credit growth has a limited but an adverse effect on the current account deficit.

Suggested Citation

  • Atış, Aydanur Gacener & Saygılı, Fatih, 2014. "An Investigation on the Relationship Between Credit Volume and Current Account Deficit in Turkey," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 5(4), pages 129-141, October.
    • Handle: RePEc:ris:buecrj:0171
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    More about this item

    Keywords

    Current account deficit; credit volume; cointegration; granger causality; vector error correction mechanism.;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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