Credit Supply, Real Estate Prices, And Macroeconomic Fluctuations

Official URL: https://risc01.sabanciuniv.edu/record=b3422598

This paper empirically and theoretically analyzes the impact of commercial credit movements on macroeconomic fluctuations in Turkey for the period 2010Q1-2023Q4, especially focusing on the housing market. For this purpose, in the empirical part, I use the local projection instrumental variable approach where a credit supply shock is an instrument, derived from the micro-data. Results imply a significant increase in consumption and house prices in response to the credit supply shock while investment, labor hours worked, and capital price responses are lagged. In the theoretical part, I augment Liu, Wang, and Zha (2013) with a credit supply shock, which affects the saving decision of a household. I compare the similarities and differences of impulse response functions of the credit supply shock with the empirical ones. Finally, variance decomposition analysis points out the importance of the credit supply shock.