THE FACTORS AFFECTING CREDIT BUBBLES: THE CASE OF TURKEY

Abstract

The Global financial crisis that started in the United Stated and which affected the whole World and especially Europe in a short time shows once again that financial crises occur as a result of bubbles in asset prices or a strong credit growth. Moreover, that bubbles in financial markets are defined as increases in asset prices. Central banks tend to control excess credit expansion and thus ensure stability in financial markets. The purpose of this study is to analyze the existence of a bubble in the Turkish credit market and the success of the monetary policy by the Central Bank of Turkey to prevent these bubbles in light of ongoing interest debates in Turkey. Monthly real estate loans have been considered for the 1986:01 to 2014:04 period in the credit sector. In this study, Sup Augmented Dickey Fuller and Generalized Sup Augmented Dickey Fuller tests have been used to identify and define bubbles. Thereafter, the factors affecting credit bubbles have been investigated via logit model. From the results of the study, it can be inferred that both the consumer price index and interest rates have negative effects on credit bubbles, while total credit to the nonfinancial private sector and current account balances have positive effects on credit bubbles.

Keywords

• bubbles
• sup test
• explosive root
• logit model