Abstract
The purpose of this paper is to empirically analyze the role of the banking sector in monetary policy transmission in Turkey covering the period 1988-2009. By exploiting dynamic panel data modeling approaches, the heterogeneity in banks’ lending response to changes in policy interest rates is analyzed. Given the changes in the policy stance and developments in the financial system following the 2000-01 crisis, the analysis is further conducted for the two sub-periods, 1988-2001 and 2002-2009, to examine whether there is a change in the functioning of the credit channel. Empirical evidence suggests cross-sectional heterogeneity in banks’ response to monetary policy changes during 1988-2009. Regarding the results of pre-crisis and post-crisis periods, it is found that an operative bank lending channel existed in 1988-2001, however its impact became much stronger thereafter. The results also show significant differences in distributional effects of monetary policy due to bank-specific characteristics between two sub-periods.
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