Macroprudential Policies, Persistence of Uncertainty and Leverage Dynamics: Evidence from a Major Developing Economy

Ibrahim Yarba and Zehra Nuray Guner

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: This paper investigates the impact of macroprudential policies and uncertainty of economic environment on corporate leverage dynamics over the last decade. This is the first study to investigate the impact of macroprudential policies and uncertainty on leverage dynamics of Turkish non-financial firms using firm-level data. We argue in this paper that persistence of uncertainty should be a more appropriate factor affecting credit dynamics rather than uncertainty. In that sense, we construct a measure of uncertainty by using principal component analysis and a measure of persistence of uncertainty for Turkey. Results from the dynamic panel models with a large set of control variables, provide significant evidence in support of the argument that leverage decisions are affected from the persistence of uncertainty rather than the uncertainty itself. Moreover, both the share of the financial debt in total liabilities and the leverage of Turkish non-financial firms decrease significantly when uncertainty increases persistently and when macroprudential policy tools are tightened. Most strikingly, this is the case only for Small and Medium-Sized Enterprises but not for large firms.

Keywords: Leverage dynamics; Macroprudential policy; Uncertainty; Persistence of uncertainty; Dynamic panel regressions (search for similar items in EconPapers)
JEL-codes: C23 D22 D81 G18 G32 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ara and nep-bec
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1910

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