Does the Relationship Between Bank Loans and Inflation Also Apply to Participation Banks? A Fourier Functional Causality Analysis on Türkiye

Abstract

Purpose- The aim of this study is to reveal the effects of the volume of consumer loans (fund disbursement to consumers in terms of participation banks) and credit cards on inflation by banks and participation banks operating in accordance with Islamic rules. Design/methodology/approach – In order to achieve this objective, data for the period 2005-2022 are analyzed for the case of Turkiye. The study examines the effect of consumer loans (the volume of fund disbursement to consumers in terms of participation banking) and credit card volume on the consumer price index (CPI) with the help of variables representing the banking sector and participation banking. The causality relationship between the variables is analyzed with a causality test that augments the Toda-Yamamoto procedure with the Fourier function (FTY). Findings – According to the results of the analysis, no causality relationship was found with the CPI for any of the variables of participation banks (consumer fund disbursement volume, credit cards, individual credit cards and corporate credit cards). On the other hand, for the variables representing the loan volume of the banking sector (consumer loans, credit cards, individual credit cards and corporate credit cards), a reciprocal causality relationship was found for each of them separately with the CPI in line with the literature. Discussion – The results of the banking sector support previous literature studies. In addition, revealing this causality clearly through the example of Turkiye also makes an important contribution to the literature. The finding that there is no causality regarding participation banking presents a new and important gain to the literature. The reasons for this valuable result in terms of participation banks and whether it is valid for other countries should be developed by further research.