Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/108654 
Year of Publication: 
2014
Series/Report no.: 
Working Paper No. 1416
Publisher: 
Koç University-TÜSİAD Economic Research Forum (ERF), Istanbul
Abstract: 
Many central banks in emerging economies have used reserve requirements (RR) to alleviate the trade-off between financial stability and price stability in recent years. Notwithstanding their widespread use, transmission channels of RR have remained largely as a black-box. In this paper, we use bank-level data to explore the interaction between RR and bank lending behavior. Our empirical findings suggest that short-term borrowing from the central bank is not a close substitute for deposits for banks. Bank lending behavior responds significantly to reserve requirements and liquidity positions. Our analysis allows us to identify a new channel that we name as the "liquidity channel". The channel works through a decline in bank liquidity and loan supply due to an increase in reserve requirements.
Subjects: 
Monetary transmission mechanism
liquidity risk
bank lending channel
Turkey
JEL: 
E44
E51
E52
Document Type: 
Working Paper

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