Macroprudential policies for financial stability: Evidence from Turkey

The fact that the policy framework of Great Moderation came out to be inadequate in the fight against macroeconomic imbalances following the global financial crisis led policy authorities to seek alternative policies. The macroprudential policy framework, defined as a new policy area in order to control systemic risks and the negative externalities that may be caused by them, strengthen the resilience of the financial system against possible shocks and increase the effectiveness of other economic policies, has been at the center of the policies implemented in the post-crisis period. Furthermore, the policy dilemmas caused by the global financial cycle due to the expansionary monetary policies implemented by developed countries to overcome the crisis has caused macroprudential policies to be increasingly needed by developing countries like Turkey. Accordingly, the CBRT introduced the new policy mix to be implemented as of November 2010, in which the monetary policy and macroprudential policies were carried out in unison and financial stability goals are levelled up with price stability goals in order to slow down short-term capital inflows and control the credit growth rate. In this context, the aim of this thesis is to investigate the effectiveness of macroprudential policies in terms of ensuring financial stability in Turkey. Within this framework, the macroprudential policy implemented after the global financial crisis was theoretically investigated, macroprudential policy practices applied in Turkish economy were evaluated and the impact of macroprudential policy stance on loan growth, which is one of the intermediate targets of the new policy mix, was empirically analysed. For this purpose, the relationship between the macroprudential policy index created for Turkey and the real total loan growth was estimated by utilizing Johansen, Mosconi and Nielsen's (2000) cointegration approach with structural breaks. The monthly data are used and covering the period of 2010:11-2017:12. Empirical findings indicated a limiting effect of the macroprudential policy practices in Turkey on long-term loan growth. This limiting effect was observed to have emerged following the tightening of the macroprudential policy stance.