Monetary Policy and Credit Cards: Evidence from a Small-Open Economy

Hakan Yilmazkuday

No 1010, DETU Working Papers from Department of Economics, Temple University

Abstract: This paper uses a unique monthly data set that covers overall credit card usage in a small-open economy, Turkey, to investigate a possible credit channel of monetary policy transmission through credit cards. A reduced-form vector autoregression analysis is employed where the forecast error variance decompositions are calculated for three-year windows over the period 2002-2009. It is shown that, during the recent financial crisis that has started in 2007, the monetary policy of Turkey has shifted toward focusing on output volatility and interest-rate smoothing through setting short-term interest rates, while the inflation rate has been mostly affected by exchange rate movements and inflation inertia. Credit cards usage has an increasing effect on inflation rates through time, requiring more policy emphasis on the credit channel through credit cards. When the effects of the credit view and the money view are compared, the former seems to be more effective on the real side of the economy independent of the level of inflation.

Keywords: Credit Cards; Monetary Policy; Credit Channel; Vector Autoregression; Turkey (search for similar items in EconPapers)
JEL-codes: C32 E44 E50 E60 (search for similar items in EconPapers)
Date: 2010-09
New Economics Papers: this item is included in nep-ara, nep-cba, nep-cwa, nep-mac and nep-mon
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http://www.cla.temple.edu/RePEc/documents/detu_10_10.pdf First version, 2010 (application/pdf)

Related works:
Journal Article: Monetary policy and credit cards: Evidence from a small open economy (2011)
Journal Article: Monetary policy and credit cards: Evidence from a small open economy (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:tem:wpaper:1010

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