This paper studies the impact of the Global Financial Cycle (GFC) on domestic credit market
conditions in a large emerging market, Turkey, over 2003{13. We use administrative data
covering the universe of corporate loan transactions matched to rm and bank balance sheets
to provide evidence on four facts that are critical in the transmission of the GFC to emerging
markets: (1) uncovered interest parity (UIP) is violated at the rm-bank level { rms pay a
lower interest rate when borrowing in foreign currency from their domestic banks; (2) the UIP
risk premium, both at the rm-bank level and at the country level, strongly co-moves with the
GFC over time; (3) during the boom phase of the GFC, the UIP risk premium falls and capital
ows into Turkey, lowering domestic borrowing costs and leads to an expansion of credit for
domestic rms; and (4) rm-bank level data on pledged collateral on new loan issuances show
that borrowing constraints do not relax during the boom phase of the GFC due to higher collateral
values. Rather, rms are able to borrow more due to lower borrowing costs on average,
which increases their ability to pay back their loans. We show that the GFC can explain 43%
of observed corporate credit growth during our sample period.