Monetary transmission mechanism: Application to Turkey

After 1980, during the structural transformation of Turkish Economy, the ratioof assets of financial sector institutions to national income in general, assets of banks asthe largest component of financial sector in particular, have increased. Composition ofthis increase is important for monetary transmission mechanisms. Monetarytransmission mechanisms explain how economy responds to monetary shocks. Thisinformation is critical for monetary policy makers. For this reason, the aim of this thesisis to explain the channel of monetary transmission mechanisms and test whether creditchannel works in Turkish Economy or not . In order to test the working of creditchannels VAR model is constructed and the results which are based on impulse-response functions and variance decomposition are reported. In addition to econometricapplication empirical results are enriched, by using various data with respect to bankingsector. According to those results, strong empirical evidence for existence of creditchannel can not be found. In summary, transmission through credit channel in TurkishEconomy can not be important because of structure of the ownership of banks,asymmetry in credit allocation among firms, decreasing importance of bank lending andexistence secondary of credit mechanisms which are constituted by firms which areexcluded from financial sector.Keywords: Transmission Mechanisms, Asymmetric Information, VAR Model, CreditChannel, External Finance Premium.