Monetary trsanmission mechanism and determinants of lending channel in the Turkish banking sector: Panel data analysis

There are some doubts about the determinants of bank lending channel transmission of monetary policy in some countries and in some cases about its own existence. Accordingly, we will carry out an empirical research to appreciate these issues. Thus, the main objectives of this thesis to analyze the banks role, the determinants of the bank lending channel and the existence of this channel of monetary transmission mechanism in Turkey. In order to explain the determinants of bank lending channel, our regression analysis is based on a version of a Bernanke and Blinder (1988) model, which was modified by other bank specific variables thus extending the approach of the above mentioned model. In order to reach these objects we analyze a sample with annual data of 24 Turkish private and foreign banks covering a period of 2003-2013. The full model is obtained not only through the bank specific variables, such as, capital adequacy, asset structure, liquidity, deposits and profitability, but also by considering the importance of the monetary policy indicator and a set of macroeconomic variables. According to panel data results, banks play an important role in the Turkish monetary transmission mechanism, and that bank specific characteristics, as well as macroeconomic factors, which are introduced into the model as control variables, are important determinants of the credit channel in Turkey. Findings of this study indicate that asset structure and profitability have a statistically significant and positive relationship, whereas capital adequacy and liquidity have a negative relationship with the bank lending behavior. Besides this the monetary policy indicator is found to have a negative effect on bank loans. Regarding the macroeconomic variables, gross domestic product and inflation have positive and significant effects for the bank loans. As a main conclusion, our findings provide evidence to support that a bank lending channel in the Turkish economy does exist. Keywords: Monetary Transmission Mechanism, Bank Lending Channel, Panel Data, Explicative Factor, Turkish Banking Sector.