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Author ORCID Identifier
Open Access Dissertation
Doctor of Philosophy (PhD)
Year Degree Awarded
Month Degree Awarded
This dissertation presents three essays on the political economy of consumer credit expansion and real exchange rate policy in dual economies.
The first essay analyzes the structural change implications of consumer credit expansions using a dual-sector growth model. In the model, policy-induced increases in banks’ willingness and ability to lend result in new consumer lending, boosting aggregate demand and average wages in the nontradable sector. Under fixed relative wages and mark-up pricing in the tradable sector, wage pressures translate into inflationary pressures. The inflation-targeting central bank raises the policy rate to contain inflationary pressures. This intervention causes a real exchange rate appreciation, followed by a loss of international competitiveness. This way, the model illustrates that consumer credit expansions can trigger premature deindustrialization, shifting sectoral structure in favor of the nontradable sector.
The second essay examines the macroeconomic effects of credit supply shocks using quarterly time series data for the Turkish economy between 2005 and 2019. To identify credit supply shocks, I generate two distinct credit supply proxies utilizing data from the Bank Loan Tendency Survey published by the Central Bank of the Republic of Turkey. These proxies reflect (1) unanticipated changes in lending standards and (2) changes in lending standards due to cost of funds and balance sheet constraints faced by banks. I incorporate these proxies into a recursive Vector Autoregressive model in real GDP, current account balance to GDP, the real exchange rate, and a credit demand proxy. Results suggest that consumer credit supply shocks cause short-lived expansion of GDP, appreciation of the real exchange rate, and deterioration of the current account balance. I analyze the robustness of these results to different proxies of credit demand, alternative specifications, and Local Projections.
The third essay, co-authored with Arslan Razmi, analyzes why many developing countries either avoid competitive real exchange rate (RER) policies or intentionally pursue RER overvaluation despite the voluminous theoretical and empirical evidence showing that RER undervaluation is conducive to economic development. We address this question by investigating how differences in economic structure and institutional characteristics explain the variation in RER undervaluation in a large panel of developing countries. We find that the import intensity of exports and central bank independence is negatively associated with RER undervaluation. Our results also suggest that RER is more likely to be undervalued in countries with higher real GDP, a higher share of tradable sector output, and more authoritarian regimes. We perform several robustness checks on our estimations.
Ugurlu, Esra Nur, "The Political Economy of Consumer Credit Expansion and Real Exchange Rate Policy in Dual Economies" (2022). Doctoral Dissertations. 2578.
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