Understanding the Recent Growth in Consumer Loans and Credit Cards in Emerging Markets: Evidence from Turkey

Abstract

Households’ choice of consumption and saving is a central topic of economics. While it has been viewed with favour by a large section of the economic profession, the surge in the household indebtedness to the historical heights has become a significant concern for developed economies. Although the current level of household indebtedness is significantly lower than the advanced economies, a similar trend has been witnessed in emerging market countries including Turkey. Along with a very strong economic growth, Turkey has achieved a 25.68 times increase in consumer loans and credit cards (CLCC) while household savings have dropped from 17.7 to 13.3% and the household debt-to-GDP ratio has risen from 2.8 to 21.1% within the last decade. Our objective is to help further understanding the dynamics of the recent growth in CLCC in Turkey. For this purpose, we investigate the long-term equilibrating relationships and short-term deviations from the equilibrium, explore the determinants, directions and strengths of causality relationships between CLCC and the selected macroeconomic variables, and analyse dynamic interactions among the variables in the post-sample period by analysing how CLCC responds to the shocks given to other macroeconomic variables and the contribution of each variable on the forecast variability of CLCC. We use monthly data for the period of January 2004-December 2013 of seven macroeconomic variables of money supply, interest rate, income, consumer confidence, inflation, stock market and consumer goods imports. On empirical findings, we make suggestions about which policy tools should be used to influence, and if necessary to manage, the growth in CLCC.

Keywords: consumer loans, credit cards, variance decomposition, impulse response, Granger causality test.

JEL Classification: E51, E52, E58