Capital flows and the international credit channel

Baskaya, Yusuf Soner; Di Giovanni, Julian; Kalemli-Özcan, Şebnem; Peydró, José-Luis; Ulu, Mehmet Fatih

doi:http://dx.doi.org/10.1016/j.jinteco.2016.12.003

Capital flows and the international credit channel

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Baskaya YS, Di Giovanni J, Kalemli-Özcan S, Peydró JL, Ulu MF. Capital flows and the international credit channel. J Int Econ. 2017 May;108 Suppl 1:S15-22. DOI: 10.1016/j.jinteco.2016.12.003

Abstract

We examine the role of the international credit channel in Turkey over 2005–2013. We show that larger, more capitalized banks with higher non-core liabilities increase credit supply when capital inflows are higher. This result is stronger for domestic banks relative to foreign banks and survives during the crisis period of post-2008, when foreign banks in general stop lending in emerging markets and retreat to their home countries. By decomposing capital inflows into bank and non-bank flows, we show the importance of domestic banks' external borrowing for domestic credit growth.