Monetary Policy and Credit Cards: Evidence from a Small-Open Economy

Economic Modeling, Forthcoming

19 Pages Posted: 27 May 2010 Last revised: 19 Dec 2011

See all articles by Hakan Yilmazkuday

Hakan Yilmazkuday

Florida International University (FIU) - Department of Economics

Date Written: May 26, 2010

Abstract

This paper uses a unique monthly data set that covers overall credit card usage in a small-open economy, Turkey, to investigate a possible credit channel of monetary policy transmission through credit cards. A reduced-form vector autoregression analysis is employed where the forecast error variance decompositions are calculated for three-year windows over the period 2002-2009. It is shown that, during the recent financial crisis that has started in 2007, the monetary policy of Turkey has shifted toward focusing on output volatility and interest-rate smoothing through setting short-term interest rates, while the inflation rate has been mostly affected by exchange rate movements and inflation inertia. Credit cards usage has an increasing effect on inflation rates through time, requiring more policy emphasis on the credit channel through credit cards. When the effects of the credit view and the money view are compared, the former seems to be more effective on the real side of the economy independent of the level of inflation.

Keywords: Credit Cards, Monetary Policy, Credit Channel, Vector Autoregression, Turkey

JEL Classification: E44, E50, E60, C32

Suggested Citation

Yilmazkuday, Hakan, Monetary Policy and Credit Cards: Evidence from a Small-Open Economy (May 26, 2010). Economic Modeling, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1616188

Hakan Yilmazkuday (Contact Author)

Florida International University (FIU) - Department of Economics ( email )

11200 SW 8th Street
Miami, FL 33199
United States

HOME PAGE: http://faculty.fiu.edu/~hyilmazk/

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