Impact of credit volume expension on current account deficit in Turkey between 1982-2016 years

Regarding Turkey's economy, it can be said that the current deficit is a chronic problem. High energy imports, insufficient internal saving rates, foreign trade deficit ongoing on for many years and overvalued country money are among the most important reasons for the current account deficit. It can be said that another important cause of the current is the loan volume expansions. Some of the people who are responsible for the economy in Turkey also have shown credit expansions as an important reason for the current account deficit. When the periods of increase or decrease in credit volume and periods of increase or decrease in current account deficit are examined, it is possible to mention a relation with the same direction. The current account deficit has also increased over the years when there were credit expansions. In the crisis period of the economy, both tended to decrease. Foreign capital does not come in sufficient amount to developing countries such as Turkey. Many developing countries are using short-term hot money in closing the foreign exchange deficit. It can be said that short-term foreign currency inflows to the country cause credit expansions. Short-term investments used as the financing of the current account both increase the credit volume and cause the current account deficit. In case interest rates applied in Turkey rise above the level of the world interest rates, there is hot money entry into the country. The increase in hot money entry increase the amount of foreign currency and decrease its value. The country's money will also be overvalued, making imports attractive. Increased loans with the ease of finding external financing are causing the current account deficit. Expanded monetary policies implemented in developed countries after the 2008 crisis have led to intensive short-term foreign capital inflows to developing countries such as Turkey. Although there has been a significant increase in consumption rates in Turkey, income, on the contrary, has not increased at the same rate so this has caused an increase in the demands for credit. The fact that the increase in credit volume caused by the hot money from the country was also used for import consumption has been an important reason for the current deficit. This study used Augmenred Dickey-Fuller and Phillips-Perron unit root test, Cusum and Cusum-Square test, Engle-Granger and Johansen cointegration test, Error correction model, Granger causality analysis, VAR model effect-response analysis and variance decomposition. As a result, it has been determined that credit expansions cause current account deficit even if limited. Keywords: Turkish Economy, Current Account Deficit, Credit Expansion, Granger Causality