Trade-based manipulation in financial markets

2013
İmişiker, Serkan
The purpose of this thesis is to empirically explore the characteristics of the monetary transmission mechanism, with a particular emphasis on the role of banks, in Turkey. By looking at the banking sector at the micro level and exploiting dynamic panel data modeling approaches, the heterogeneity in banks’ response in terms of their lending and risk-taking to changes in policy interest rates is analyzed. The first essay is an empirical analysis of the bank lending channel of monetary transmission. In this regard, the lending behavior of banks operating over the period 1988-2009 is examined. Given the changes in the policy stance and developments in the financial system following the 2000-01 crisis, the analysis is further conducted for the two sub-periods: 1988-2001 and 2002 2009, to examine whether there is a change in the functioning of the credit channel. Empirical evidence suggests cross sectional heterogeneity in banks’ response to monetary policy changes during 1988-2009. Regarding the results of the pre-crisis and post-crisis periods, it is found that an operative bank lending channel existed in 1988-2001, however its impact became much stronger thereafter. Furthermore, there are significant differences in the distributional effects due to bank specific characteristics in the impact of monetary policy on credit supply between the two sub-periods. The second essay investigates the existence of risk-taking channel of monetary policy by using quarterly data over the period 2002-2012. Four alternative risk measures are used in the analysis; three accounting-based risk indicators and a market-based indicator. Our findings show that low levels of interest rates have a positive impact of banks’ risk-taking behavior for all risk measures. In terms of bank specific characteristics, our results imply that large, liquid and well-capitalized banks are less prone to risk-taking.

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Citation Formats
S. İmişiker, “Trade-based manipulation in financial markets,” Ph.D. - Doctoral Program, Middle East Technical University, 2013.