Asymmetric effects of central bank funding on commercial banking sector behaviour


ŞAHİN A., Berument M. H.

Economic Research-Ekonomska Istrazivanja, vol.32, no.1, pp.128-147, 2019 (Peer-Reviewed Journal) identifier identifier

  • Publication Type: Article / Article
  • Volume: 32 Issue: 1
  • Publication Date: 2019
  • Doi Number: 10.1080/1331677x.2018.1552174
  • Journal Name: Economic Research-Ekonomska Istrazivanja
  • Journal Indexes: Social Sciences Citation Index, Scopus
  • Page Numbers: pp.128-147
  • Keywords: Monetary policy, central banking, central bank funding, NARDL-ECM, RATE PASS-THROUGH, MONETARY-POLICY

Abstract

© 2019, © 2019 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.In this paper, we assess the effects of Central Bank Funding (C.B.F.) on commercial bank lending behaviour by using weekly Turkish data from 7 January 2011 to 5 June 2015. To be specific, using the Nonlinear Autoregressive Distributed Lag Error Correction Model, we assess the effects of C.B.F. provided daily by the Central Bank of the Republic of Turkey through Open Market Operations to financial markets. Our empirical evidence reveals that for all types of lending, an increase in C.B.F. (which has a higher cost for commercial banks relative to alternatives) forces commercial banks to borrow from higher-cost channels, i.e., we find that increasing C.B.F. discourages commercial bank lending. We also find that decreases in C.B.F. that proxy what commercial banks can borrow more cheaply from alternative sources increase commercial bank lending. However, increasing C.B.F. is more effective than decreasing C.B.F. for Total Bank Loans, Total Credit Cards and Automobile Loans, and decreasing C.B.F. is more effective in the short run for Consumption Loans, Housing Loans and Commercial Loans: short-run asymmetry. Therefore, we can report only limited support for long-run asymmetry, and consequently, claim that there is magnitude (an increase versus decrease in C.B.F.) and category asymmetry (across different lending categories).