Effectiveness of monetary and macroprudential shocks on consumer credit growth and volatility in Turkey

This paper proposes a panel VAR model to uncover the effect of monetary policy and macroprudential tightening probability on general purpose loans, housing loans, vehicle loans, credit cards and their respective volatilities in Turkey. To conduct our analysis, first, we compare a number of stochastic volatility models using our loan and credit card series in a formal Bayesian model comparison exercise, in order to determine the best volatility model for our series. Second we disclose the latent probability of macroprudential tightening from the binary information of policy episodes, using an instrumental variable probit model estimated by conditional maximum likelihood with heteroscedasticity robust standard errors. Lastly we estimate the dynamic impact of monetary policy and macroprudential measures using a panel VAR, incorporating the latent probability of tightening episodes, credit growth, industrial production growth, loan rates, inflation and credit growth volatilities into the endogenous system of equations. We conclude that macroprudential tightening is effective in dampening credit growth, credit growth volatility and reducing consumer price inflation. Besides, this effect is more prominent when macroprudential tools are administered in coordination with monetary policy. Keywords: Consumer loans, Monetary policy, Macroprudential policy, Stochastic volatility models, Credit growth volatility, IV probit model, Panel VAR model, JEL classification: C54, E44, E5

Nonlinearities in CDS-Bond Basis (CDS-Bono Farkinin Dogrusal Olmayan Duzeltme Hareketi)

Theoretically, the risk premium captured by Credit Default Swap (CDS) and bond yield spreads should be equal. However, data reveals a significant difference between the two spreads. We explore the presence of a mean-reverting behavior in this difference (CDS-bond basis), for selected emerging markets, employing alternative threshold models (TAR, TAR-GARCH and ESTAR). Our results indicate a positive relationship between the speed of adjustment and the trading frequency of the sovereign CDS’s and bonds. The TAR-GARCH model suggests that the adjustment of the CDS-bond basis is immediate for economies with more liquid CDS’s and bonds, such as Argentina, Brazil and Mexico. The ESTAR model indicates that the adjustment displays a gradual pattern for the basis of the economies with less frequently traded bonds and CDS’s.CDS-bond Basis, Nonlinear Adjustment

CDS-Bono Farki ve Duzeltme Hareketi

[TR] Ulke kredi riskinin alternatif gostergeleri olan kredi temerrut takasi (CDS) orani ve EMBI+ulke farki degerlerinin teoride arbitraj imkanina yer vermeyecek sekilde esit olmasi beklense de; iki veri donemsel olarak oldukca farkli hareketler gosterebilmektedir. Bu not, soz konusu farkin aciklayicisi olabilecek yapisal etmenleri ve piyasa etmenlerini tanitmakta; CDS ve bono piyasasinin secilmis ulkeler bazinda ve kriz donemlerinde ayrismasinin dinamiklerini incelemektedir. [EN] Theoretically, Credit Default Swap (CDS) spreads and EMBI+Country Sovereign Spreads should be equal to avoid arbitrage opportunity. However, data reveals significant differences between these two spreads. This note discusses structural and market factors behind this discrepancy and analyzes the divergence of CDS and bond markets especially during periods of financial market stress.

Common Movement of the Emerging Market Currencies

The aim of this study is to show that there exists a common movement among the currencies of emerging market economies that implemented the exible exchange rate regime after 2000. Also, we examine if this common movement is closely related to financial markets and some macroeconomic fundamentals commonly referred to as possible driving forces of exchange rates in economics literature. This common movement, which has been derived using a dynamic factor model, is introduced as a composite index of these currencies. Our findings suggest that the currencies of the emerging market economies have a common movement which can be explained to a great extent with the help of financial variables. On the other hand, macroeconomic fundamentals have limited explanatory power for apprehending the common dynamics of currencies. Also, both financial variables and macroeconomic fundamentals are analyzed together, within a nonlinear estimation framework, to see if the explanatory power of macroeconomic fundamentals improves. However, we could not observe a significant improvement. Specifically, the results underline the importance of bond market variables, stock market variables and risk indices in understanding the (common) dynamics of the emerging market currencies after 2000.exchange rate analysis, emerging market economies, dynamic factor model, financial analysis, exchange rate models, nonlinear models

Gelismekte Olan Ulkelerin Kurlarindaki Ortak Hareketin Analizi

[TR] Bu notta, gelismekte olan ulkelerin kurlarinda ortak bir hareketin varligi tespit edilmekte ve bu ortak hareketin finansal degiskenlerle olan iliskisi incelenmektedir. Bu amacla 2000 yili sonrasinda, agirlikli olarak esnek kur rejimi uygulayan ulkelerin kurlarinin ortak hareketi dinamik faktor modeli yontemiyle tahmin edilerek tek serilik bir endeks haline getirilmistir. Elde edilen sonuclar, gelismekte olan ulkelerin kurlarinda dikkat ceken ortak bir faktorun varligina ve finansal verilerin bu ortak faktordeki degisimlerle paralel hareket ettigine isaret etmektedir. [EN] This note documents the existence of a common movement across emerging market currencies under flexible exchange rate regime after 2000 and examines the relationship between this common movement and financial variables. This common movement, which has been derived using a dynamic factor model, is introduced as a composite index. The results show that the emerging market currencies have a common factor which moves closely with financial variables.