Consumer credits and the efficiency of monetary policy in Turkey

The main aim of this study is to understand how the growth of consumer credit has changed the effect of monetary policy on household consumption in Turkey. For this purpose, the hypothesis that the growth of consumer credit has weakened the ability of monetary policy to affect household consumption behavior has been examined with a variety of empirical evidence. Firstly, the argument that the consumer credit to smooth consumption makes monetary policy less effective in Turkey has been tested. The empirical results showed that after the growth in consumer credit volume, consumption behaves consistently with the permanent income hypothesis. Household behavior is less sensitive to short-run changes in monetary policy because they can access credit more easily and smooth their consumption. Secondly, the argument that households are less liquidity constrained with credit cards and so, monetary policies have no effect on consumption behavior in Turkey has been tested. According to traditional view of banking credit channel; consumers using credit card are in a liquidity constraint so, they more sensitive to the interest rates and also to the monetary shocks. However, the empirical results shows the opposite of the traditional view. Consumers are not only in a liquidity constraint but also they use credit cards as an instrument to stabilize monetary policy shocks.