Abstract
This study aims to examine the monetary policy transmission through the credit channel from a microeconomic perspective by using the fixed effect dynamic panel model. It is estimated to what extent policy interest rate changes are transferred to the short-term interest rate depending on the type of loan. Results confirm that there is a high degree of inertia in both the commercial and consumer loan interest rates. In terms of the transmission of monetary policy, changes in policy interest rates are transferred to commercial loan interest rates by 11% and consumer loan interest rates by 15% in the short term. These values reveal that policy interest rate changes are gradually transmitted to market interest rates. Variables representing bank size, leverage, and market power in terms of distinctive characteristics have a limited impact on both commercial and consumer loan interest rates in the analyzing period. However, the market share of a bank has a significant impact on both commercial and consumer loan rates.
Highlights
Monetary policy has an important role in softening the business cycle fluctuations in an economy
This study aims to examine the monetary policy transmission through the credit channel from a microeconomic perspective by using the fixed effect dynamic panel model
It is estimated to what extent policy interest rate changes are transferred to the short-term interest rate depending on the type of loan
Summary
Monetary policy has an important role in softening the business cycle fluctuations in an economy This is evidenced by the fact that many central banks around the world have agreed to maintain price stability or keep the growth in economic activity around the potential rate as their goal. A central bank has multiple instruments that affect a targeted macroeconomic aggregate through different transmission channels. Among these instruments, interest rate changes come to the fore. The credit channel, which is known as the effect of policy interest rate changes on loan interest rates and loan demand, is the main transmission channel for Turkey. This is because during the review period, the rate of economic growth in Turkey is largely determined by domestic demand (see Figure 1), and domestic demand can be accelerated or limited by changing the cost of borrowing
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