Abstract:

Central banks have the potential to affect the financial and real indicators in the economy through many different channels with their monetary policy implementations. Economists put many different views forward regarding the functioning of the monetary transmission mechanism. Thus, it is very difficult for central banks to design monetary policies effectively. Therefore, policymakers need a comprehensive knowledge of the transmission mechanisms of money in the economy. From this point of view, in our study, the operation of the bank credit channel in Turkey has been examined by using the Impulse-Response Function and Variance Decomposition techniques for the data between 2005 and 2019. Thus, it is aimed to contribute to the process of effectively designing monetary policies in Turkey. Empirical findings have determined that the bank credit channel works effectively in Turkey. In addition to the fact that the financial system has a banking-based structure, the private sector is under serious liquidity constraints, making entrepreneurs in Turkey sensitive to the amount of bank credit when making investment decisions. Thus, it is seen as an effective method for the central bank in Turkey to set up monetary policy practices over the bank credit channel.

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