Credit Decomposition and Economic Activity in Turkey: A Wavelet-Based Approach

Credit Decomposition and Economic Activity in Turkey: A Wavelet-Based Approach

20/14

Oğuzhan Çepni, Yavuz Selim Hacıhasanoğlu, Muhammed Hasan Yılmaz

English

October 2020

This paper aims to investigate the co-movement between credit growth and gross domestic product (GDP) growth in Turkey over the period January 2004–October 2019. By taking into account alternative credit decomposition and the variations over time and across different frequencies using the wavelet analysis, the results show that: i) GDP growth highly synchronizes with credit growth compared to other financial variables such as stock exchange, bonds, and exchange rate; ii) There is a high correlation between commercial loan growth and capital formation, whereas a relatively weak one is observed between consumer loans and consumption; iii) Co-movement stemming from Turkish Lira (TL) credits to GDP growth is stronger than foreign exchange (FX) credits where the latter is significant until 2015; iv) Public and domestic private banks are the main drivers of economic activity while the foreign banks are following them. By showing the differential coherence of varied types of credit on GDP growth, we specify that shocks to different credit types are crucial to analyze business cycles. For policymakers, this result implies that the dynamics of different credit types are crucial to analyze the impacts of credit cycles on economic activity.

Credit growth, GDP growth, Time variation, Frequency variation, Wavelet analysis

E32; E44; F43; F44; C49