Government Domestic Debt, Credit Market and Crowding-Out Effect in Türkiye

Government debt is an important fiscal policy tool for policymakers with its fiscal, economic, and financial effects. At this point, the investor base is one of the most important factors. The government obtains its financing needs from a variety of sources and generates economic effects through various channels. Banks are one of the most important sources for realizing these effects today. The purpose of this study is to investigate the economic impact of debt in Türkiye through the banking credit channel. To fulfill the study’s goal, a structural VAR (SVAR) model was developed using the variables real GDP, the ratio of central government domestic debt stock to GDP, total credit volume, and 5-year government yield from 2006:Q1 to 2023:Q4. The study’s findings indicate that a short-term increase in domestic debt leads to a crowding-out effect, which state-supported credit-like activities mitigate in the medium term. They also demonstrate that the short-term decrease in interest rates loses its effect in the medium term. The analysis also shows that the increase in government bond interest has a contractionary effect on credit volume and production. This study emphasizes the role of banks and the credit channel in debt management in Türkiye.