Credit decomposition and economic activity in Turkey: A wavelet-based approach

Özet

This paper aims to investigate the co-movement between the credit growth and gross domestic product(GDP) growth in Turkey over the period January 2004eOctober 2019. By taking into account alternativecredit decomposition and the variations over time and across frequencies using the wavelet analysis, theresults show that: i) GDP growth highly synchronizes with credit growth compared to otherfinancialvariables such as stock exchange, bonds, and exchange rate. ii) There is a high correlation betweencommercial loan growth and capital formation and a relatively weak one with consumer loans andconsumption. iii) Co-movement stemming from Turkish Lira (TL) credits to GDP growth is stronger thanforeign exchange (FX) credits where the latter is significant until 2015. iv) Public and domestic privatebanks are the main drivers of economic activity while the foreign banks are following them. By showingthe differential effects of different types of credit on GDP growth, we specify that shocks to differentcredit types are crucial to analyze business cycles. For policymakers, this result implies that the dynamicsof different credit types are crucial to analyze the impacts of credit cycles on economic activity.