An analysis of monetary transmission mechanism and the efficieny of bank lending channel in Turkey: Theory and application

Global crisis has recently showed that financial system especially banking system is an important determinant of economic fluctuations. That the financial intermediaries, banking sector particularly, couldn?t fulfill its intermediary function properly has restricted the real sector?s capability to access of funds and lead the financial crisis affect the real sector. Central banks have tried to boost the real economy in the light of these circumstances with monetary policy supporting aggregate demand and credit supply. All of these cases have revealed the importance of relationship among monetary policy, banking system and the real economy and also that of credit channel?s role in monetary policy transmission.The credit channel studied under two sub-titles as bank lending channel and balance sheet channel emphasizes the importance of bank loans in transmission of monetary policy to the real economy. According to the credit channel, monetary policy affecting the supply of bank credit and/or the ability of households and firms to access to credit becomes influential on investment and consumption decisions and determines the direction of the real economy.In this study the relationship between monetary policy practices and bank credit and real sector in Turkish economy has been discussed in both theoretically and empirically. In theoretical analysis macro data form Turkish economy for 1995:1?2009:12 have been interpreted within the scope of the necessary conditions for the functioning of the bank lending channel and then the efficiency of bank lending channel has been analyzed for the same period by VECM methodology. The findings of the research suggest that there is an efficient bank lending channel in Turkish economy during the period investigated.Keywords: Monetary Transmission Mechanism, Credit Channel, Bank Lending Channel, Balance Sheet channel, Asymmetric İnformation.