 Sectoral implications of policy induced household credit expansionsEsra Nur Ugurlu Structural Change and Economic Dynamics, 2023, vol. 67, issue C, 14-31 Abstract: This paper analyses the sectoral implications of household credit expansions in a two-sector open economy model. In the model, policy-induced expansion in banks’ willingness and ability to lend to households results in new lending, boosting aggregate demand and average wages in the nontradable sector. Under fixed relative wages and mark-up pricing in the tradable sector, wage pressures translate into inflationary pressures. The inflation-targeting central bank increases the policy rate to contain inflationary pressures. This intervention causes a real exchange rate appreciation, followed by a reduction in international competitiveness and a contraction of the tradable sector output. This way, the model illustrates that consumer credit expansions can trigger premature deindustrialisation, shifting the sectoral structure away from the high-productivity tradable sector towards the lower-productivity nontradable sector. Key macroeconomic developments from the Turkish economy between 2002 and 2013 are presented to motivate the model. Keywords: Household credit; Structural change; Financial resource curse; Inflation targeting; Real exchange rate (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:67:y:2023:i:c:p:14-31 DOI: 10.1016/j.strueco.2023.06.002 Access Statistics for this article Structural Change and Economic Dynamics is currently edited by F. Duchin, H. Hagemann, M. Landesmann, R. Scazzieri, A. Steenge and B. Verspagen More articles in Structural Change and Economic Dynamics from Elsevier |
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