Borrowing constraints and saving in Turkey

Abstract

The Turkish macroeconomic experience since 2002 has been characterized by three striking trends: (1)an accelerated growth rate of income, (2) a sharp decline in the real interest rate, and (3) a sustained fallin the saving rate of different age-groups. During the same period, there has also been a signiŞcantincrease in access to credit by Turkish households. In this paper, we argue that a model which incorporates a borrowing constraint mechanism together with the observed increases in the expectedgrowth rate of income and the substantial declines in the real interest rate is able to explain the changein saving across cohorts in Turkey over the last decade. We provide both micro-level evidence on the agesaving proŞle for Turkey as well as quantitative results from a simple three-period OLG framework withborrowing constraints to account for the change in the saving rate for different age-groups between 2004and 2014.© 2018 Central Bank of The Republic of Turkey. Production and hosting by Elsevier B.V. This is an openaccess article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)