The Relationship Between Domestic Credit Volume and Unemployment Rate In The Turkish Economy: An Empirical Analysis

Abstract

In this study, monthly frequency data covering the period between 2014:01 and 2022:10 were used to examine the relationship between domestic credit volume and unemployment rate in the Turkish economy. For this purpose, Vector Autoregressive Model (VAR) was used for the analysis and impact-response function and variance decomposition analyses were performed to interpret the coefficients obtained. According to the impact-response function results, shocks originating from both variables had a negative effect for a certain period and then created a positive effect before damping out. In addition, according to the variance decomposition results, approximately 85.2% of the change in domestic credit volume was explained by itself after 15 months, while approximately 14.79% was explained by the unemployment rate. Similarly, after 15 months, approximately 92.54% of the changes in the unemployment rate were explained by itself, while 7.45% was explained by domestic credit volume. Overall, it was determined that the effects of each variable on the total variability of the other variable lasted for 9 and 6 months, respectively. Finally, the Granger causality test was applied to reveal the causal relationships between domestic credit volume and unemployment rate. According to the test results, it was determined that the unemployment rate is the Granger cause of domestic credit volume. Therefore, it can be said that changes in the unemployment rate create changes in domestic credit volume.