AN EMPIRICAL ANALYSIS OF OUTPUT-CREDIT RELATIONSHIP IN TURKEY

With the latest global financial crisis, the debate about the role of credit in affecting output has intensified. In this respect, it has become necessary to investigate output-credit relationship for Turkey. In this paper, we aim to analyze the empirical relationship between output and credit by employing different econometric techniques. First, we employed cross correlation, regression and VAR analysis. Following this, we used Bounds test approach in order to investigate cointegration relationship between output and credit. Then, ARDL approach is employed with the purpose of investigating the long and short- term static relationship between output and credit. The results show that output leads credit in Turkey. Credit responds significantly to an output shock, but not vice versa. According to Bounds Test results, we have found a significant long run cointegration relationship between output and credit. ARDL model results show that credit coefficients are not significant but error correction mechanism works.