Quasi-experimental analysis reveals reduced borrowing and employment in asset-dollarized firms, indicating significant negative spillovers from local currency lending limits.
Key Points
To examine the credit and real economic effects of regulatory restrictions on local currency lending to firms exceeding foreign currency asset thresholds.
Analyzed administrative credit and operational data from Turkey covering January 2021 to December 2023.
Employed a difference-in-differences empirical strategy combined with propensity score matching to compare affected firms against comparable unaffected peers.
Affected firms experienced a medium-term decline in local currency loan uptake, with the magnitude of credit contraction concentrated among credit-constrained firms.
Restricted firms substituted domestic loans by drawing on foreign currency debt, expanding Turkish lira trade credit, and depleting internal foreign exchange reserves.
Lending limits led to real corporate harms, including depressed employment growth, reduced net exports, and heightened operational volatility.