An Investigation on the Relationship Between Credit Volume and Current Account Deficit in Turkey

Aydanur Atış and Fatih Saygılı ()
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Fatih Saygılı: Ege University

Business and Economics Research Journal, 2014, vol. 5, issue 4, 129-141

Abstract: Following the 2008 global financial crisis, Turkey’s current account deficit has deteriorated due to a rapid growth of total credit volume and the appreciation of domestic currency. In 2010, the Central Bank of Turkey implemented a new monetary policy to improve domestic financial stability. The new policy was designed to maintain a sustainable current account deficit by reducing total domestic credit volume. The aim of this paper is to explore the impact of the domestic credit volume on Turkey’s current account deficit. The relationship between the credit growth and current account is analyzed by using quarterly data over the period 1998:1-2013:1. An econometric VECM technique and Granger Causality tests are used to analyze and to detect the long-run relationship between variables. Our findings indicate that the total credit growth has a limited but an adverse effect on the current account deficit.

Keywords: Current account deficit; credit volume; cointegration; granger causality; vector error correction mechanism. (search for similar items in EconPapers)
JEL-codes: E42 E51 F32 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:ris:buecrj:0171

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