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Effectiveness of monetary and macroprudential shocks on consumer credit growth and volatility in Turkey

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  • Meltem Gulenay Chadwick

Abstract

This paper proposes a panel VAR model to uncover the effect of monetary policy and macroprudential tightening probability on general purpose loans, housing loans, vehicle loans, credit cards and their respective volatilities in Turkey. To conduct our analysis, first, we compare a number of stochastic volatility models using our loan and credit card series in a formal Bayesian model comparison exercise, in order to determine the best volatility model for our series. Second we disclose the latent probability of macroprudential tightening from the binary information of policy episodes, using an instrumental variable probit model estimated by conditional maximum likelihood with heteroscedasticity robust standard errors. Lastly we estimate the dynamic impact of monetary policy and macroprudential measures using a panel VAR, incorporating the latent probability of tightening episodes, credit growth, industrial production growth, loan rates, inflation and credit growth volatilities into the endogenous system of equations. We conclude that macroprudential tightening is effective in dampening credit growth, credit growth volatility and reducing consumer price inflation. Besides, this effect is more prominent when macroprudential tools are administered in coordination with monetary policy.

Suggested Citation

  • Meltem Gulenay Chadwick, 2018. "Effectiveness of monetary and macroprudential shocks on consumer credit growth and volatility in Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 18(2), pages 69-83.
    • Handle: RePEc:tcb:cebare:v:18:y:2018:i:2:p:69-83
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    Citations

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    Cited by:

    1. Chokri Zehri & Zagros Madjd‐Sadjadi, 2024. "Capital flow management and monetary policy to control credit growth," Economics and Politics, Wiley Blackwell, vol. 36(2), pages 637-676, July.
    2. Stewart, Robert & Chowdhury, Murshed & Arjoon, Vaalmikki, 2021. "Interdependencies between regulatory capital, credit extension and economic growth," Journal of Economics and Business, Elsevier, vol. 117(C).
    3. Farrukh Shahzad & Zeeshan Fareed & Bushra Zulfiqar & Umme Habiba & Muhammad Ikram, 2019. "Does abnormal lending behavior increase bank riskiness? Evidence from Turkey," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-15, December.
    4. Stewart, Robert & Chowdhury, Murshed, 2021. "Banking sector distress and economic growth resilience: Asymmetric effects," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    5. Kaelo Mpho Ntwaepelo, 2021. "The Effects of Macroprudential and Monetary Policy Shocks in BRICS economies," Economics Discussion Papers em-dp2021-20, Department of Economics, University of Reading.

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