Financial intermediation and crisis under macroeconomic uncertainty in a liberalizing economy: Turkey, 1980--1998

This dissertation studies the nature of financial disintermediation and crisis under macroeconomic uncertainty in a liberalizing economy, Turkey during the 1980--1998 period. I argue that financial market fragility and episodes of recurrent crises deriving from macroeconomic instability can exert an independent influence on real macroeconomic outcomes, leading to dawdling economic performance, much lower than a country's potential as occurred in the Turkish case.; I first study the role of credit market disintermediation in disrupting private investment in Turkey during the 1988--1989 period, and demonstrate how credit crunch under economic instability reduced the access of some companies to credit markets in a micro-econometric panel data analysis of the corporate financing and investment patterns. The theoretical model shows that systematic uncertainty aggravates the problem of credit market imperfections by increasing the degree of credit rationing and hence, may prove more costly than assumed so far.; Later, I study the origins and the development of the 1994 financial crisis in Turkey, and argue that under capital mobility, reforming economies without fiscal discipline may be prone to financial fragility and recurrent episodes of economic crisis. I show that an unsustainable growth in public debt may carry the risk of inflationary monetization and eventually, trigger a reversal of speculative capital inflows, a panic run on currency, a full-blown financial crisis and economic recession which result in bank failures, corporate distress and a dramatic downturn in economic activity.; I also argue that the interlocking ownership ties of banks and holding companies strengthened during the 1990s as an institutional anomaly because bank ownership was considered as a bulwark against recurrent crises and credit crunches. The 1994 crisis also showed that holdings with bank ties averted the crisis with minimum losses by compensating the decline in industrial earnings by lending to the government.; I conclude this dissertation with a general equilibrium model of financial sector subject to systematic monetary shocks and generate crisis prone fundamentals and output fluctuations in the presence of market imperfections like nominal contracting and costly default.