Short-Run Monetary Policy Transmission, Credit Risk, and Bank Portfolio Adjustments: Evidence from the Non-Financial Corporate Sector in an Emerging Economy

This paper examines the short-run transmission of monetary policy shocks to bank credit granted to the non-financial corporate sector in Morocco, a bank-based emerging economy. While conventional monetary theory emphasizes the interest rate channel, growing empirical evidence suggests that monetary transmission is increasingly conditioned by banks’ balance-sheet constraints and credit risk considerations. The central question addressed is whether policy-rate shocks translate into short-run credit expansion or are instead absorbed through alternative banking adjustment mechanisms. The empirical analysis relies on monthly macro-financial data over the period 2014–2024 and employs a reduced-form Vector Autoregressive (VAR) framework. Impulse response functions, forecast error variance decompositions, and Granger causality tests are used to assess the dy-namic interactions between the policy rate, non-financial corporate credit, banks’ sovereign asset holdings, and credit risk conditions.The results show that monetary policy shocks generate weak, short-lived, and economically negligible responses in non-financial corporate credit, with no evidence of sustained credit expansion following policy-rate changes. By contrast, monetary impulses are associated with systematic balance-sheet reallocation toward sovereign assets and with more pronounced, though transitory, movements in credit risk indicators. Variance decompositions further reveal that short-run credit dynamics are overwhelmingly driven by internal banking and risk-related factors, while monetary policy shocks explain only a marginal share of credit fluctuations. Overall, the findings indicate that short-run monetary transmission in Morocco operates predominantly through risk-sensitive balance-sheet adjustments rather than through direct quantity-based credit responses, thereby reframing the interpretation of weak credit reactions to monetary policy in bank-based emerging economies.