The Effect of Bank Credit on the Current Account Balance in Turkey
The Effect of Bank Credit on the Current Account Balance in Turkey

Author(s): Özcan Karahan, Metehan Yılgör, Hakan Öndes
Subject(s): National Economy, Business Economy / Management, Economic history, Transformation Period (1990 - 2010), Present Times (2010 - today)
Published by: Masarykova univerzita nakladatelství
Keywords: bank credit; current account deficit; ARDL model;
Summary/Abstract: Like another developing country, one of the most important problems in Turkish economy is the large current account imbalance which continues permanently. Past experiences in the Turkish economy indicated that persistent large current account imbalances make financial system more fragile and cause serious currency crises. Therefore, examining the determinants of current account deficit in Turkey becomes a significant research topic. Accordingly, this study aims to analyse the impact of bank credit expansion on current account balance in Turkey. Covering the quarterly data between 2004 and 2017 the relationship between bank credit and current account balance has been investigated in the long run and the short run by ARDL Model. Empirical results show that there is a causal relationship from credit growth to current account deficit. It seems that credit expansion has been one of the leading reasons behind the growing current account deficits in Turkey. Thus, the results indicate that policy-makers in Turkey should take into account the credit expansion while keeping the current account balance as the primary objective to provide financial system soundness and economic stability.

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