Bank lending channel in Turkey

Abstract

This thesis analyses empirically the role of bank lending in monetary policy transmission on the basis of Turkish bank level data. First, the research addresses the theoretical framework of the bank lending channel, examines necessary conditions for its existence, and presents a simplified, but still explanatory theoretical model in the spirit of Kashyap and Stein’s work empowered by Peek and Rosengren’s assumptions. Second, attention is paid to the institutional features of Turkish financial system that make the bank lending channel (apart from traditional interest rate channel) a plausible candidate to explain the influence of the Turkish Central Bank’s monetary policy on real sector. Third, the paper conducts an econometric analysis of whether bank lending channel in fact operates in Turkey. The main result suggests that there is a strong evidence supporting the operation of bank lending channel in Turkey, depending to the capital adequacy of the commercial banks, which is consistent with the bank lending channel hypothesis.