Effects of Monetary Policy on Emerging Market Economies: Study Perspective from Bank Lending Channel

Abstract

This study aims to examine the effects of bank lending channel of monetary policy on capital markets in seventeen emerging countries comprising of 5,574 banks over the sampled years from 2006-2021. Due to the importance of monetary policy and its transmission effect into the real economy via multiple channels, this research will focus on the bank lending channel because of the significant effects which banks have on the economy and financial markets. The study utilizes dynamic panel model with sys-GMM and fixed effect regressions along with performing robustness check, firstly by performing instrumental variable regressions and secondly by taking higher lags from the data sample. Results of the study indicate that bank lending channel operates in the capital markets. The financial development indicators exhibit a strong and significant effect on bank lending channel where monetary policy negatively affects and economic growth positively influences bank lending in the sampled countries.