US ECONOMIC POLICY UNCERTAINTY AND LOAN GROWTH IN TURKEY

Abstract

In this paper we aim to examine the transmission channel of US economic policy uncertainty on Turkish economy. We proxy economic uncertainty via the recent measure calculated by Baker et al. (2016), which calculates uncertainty through counting selected word frequencies in a number of newspapers. Previous literature show that economic uncertainty has significant and negative impact on economic growth through investments and consumption. However, there are very few studies which check the transmission channel of uncertainty across economies. Hence, we investigate whether economic policy uncertainty (EPU) spills over to bank loan growth in Turkey for the periods between 1985 and 2018 using Hafner and Herwartz (2006) methodology. Using monthly data, we find that, indeed EPU has an impact on bank loans and therefore economic uncertainty mainly diffuses across countries through financial institutions.