International Spillovers and Local Credit Cycles
This paper studies the transmission of the Global Financial Cycle (GFC) to domestic credit market conditions in a large emerging market, Turkey, over the years 2003-13. Matching administrative data covering the universe of corporate loan transactions to bank balance sheets, we document four facts: (1) an easing in global financial conditions leads to lower borrowing costs and an increase in local lending; (2) domestic banks that are more exposed to international capital markets transmit the GFC locally; (3) the fall in borrowing costs is driven by a failure in uncovered interest rate parity (UIP), where the UIP risk premium comoves with the GFC over time; (4) data on posted collateral for new loan issuances show that collateral constraints do not relax during the boom phase of the GFC.
We thank the editor Veronica Guerrieri and four anonymous referees for their helpful comments. Mark Aguiar, Koray Alper, Olivier Blanchard, Anusha Chari, Stijn Claessens, Gita Gopinath, Pierre-Olivier Gourinchas, Kinda Hachem, Nobu Kiyotaki, Alberto Martin, Arnauld Mehl, Benoit Mojon, Romain Rancière, Hélène Rey, Jesse Schreger, Hyun Song Shin and participants at numerous conferences and seminars for their helpful comments. We thank Eda Gulsen who provided phenomenal research assistance. We also thank Galina Hale and Camille Minoau for the data on syndicated loans. The views expressed herein are those of the authors and not necessarily those of the Central Bank of the Republic of Turkey, the Federal Reserve Bank of New York, or the National Bureau of Economic Research. Di Giovanni gratefully acknowledges the Spanish Ministry of Economy and Competitiveness, through the Severo Ochoa Programme for Centres of Excellence in R&D (SEV-2015-0563) for financial support.