Abstract
Rapid credit growth induced by sudden capital inflows may negatively affect a country’s economic performance, with the resulting outflows turning into a financial crisis. The purpose of this study is to determine whether controlling the credit channel of monetary policy could be used as a macroprudential tool to suppress the effects of sudden capital inflows on economic performance for small open economies like Turkey. In this paper, using the Vector Autoregression methodology employed by (Bernanke, S. B., M. Gertler, and M. Watson. 1997. “Systematic Monetary Policy and the Effects of Oil Price Shocks.” Brookings Papers on Economic Activity 1: 91–157), we investigate whether shutting down the credit channel helps reduce the effects of capital inflows. Indeed, empirical evidence from Turkey shows that doing so decreases the effects of capital inflows on imports and industrial production, but further decreases interest rate and prices and further appreciates the domestic currency. Therefore, it may be prudent to support credit control with additional policy tools to prevent a further decrease in interest rate and prices and a further appreciation of the domestic currency.
Acknowledgments
We would like to thank Rana Nelson and the two anonymous referees for their valuable comments.
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©2016 by De Gruyter
Artikel in diesem Heft
- Frontmatter
- Advances
- On the macroeconomic effects of heterogeneous productivity shocks
- Fiscal policy in an open economy
- Understanding entry and exit: a business cycle accounting approach
- Contributions
- Predicting US recessions with stock market illiquidity
- The corruption-inflation nexus: evidence from developed and developing countries
- Credit channel and capital flows: a macroprudential policy tool? Evidence from Turkey
- Optimistic about the future? How uncertainty and expectations about future consumption prospects affect optimal consumer behavior
- Forecasting exchange rates using multivariate threshold models
- Firms’ operational costs, market entry and growth
- Commonalities and cross-country spillovers in macroeconomic-financial linkages
- Identifying conventional and unconventional monetary policy shocks: a latent threshold approach
Artikel in diesem Heft
- Frontmatter
- Advances
- On the macroeconomic effects of heterogeneous productivity shocks
- Fiscal policy in an open economy
- Understanding entry and exit: a business cycle accounting approach
- Contributions
- Predicting US recessions with stock market illiquidity
- The corruption-inflation nexus: evidence from developed and developing countries
- Credit channel and capital flows: a macroprudential policy tool? Evidence from Turkey
- Optimistic about the future? How uncertainty and expectations about future consumption prospects affect optimal consumer behavior
- Forecasting exchange rates using multivariate threshold models
- Firms’ operational costs, market entry and growth
- Commonalities and cross-country spillovers in macroeconomic-financial linkages
- Identifying conventional and unconventional monetary policy shocks: a latent threshold approach