Long-Run Monetary Policy Transmission and Bank Credit Dynamics under Risk and Balance-Sheet Constraints: Evidence from an Emerging Economy

In emerging economies characterized by a predominance of the banking sector, the trans-mission of monetary policy to bank credit remains a central and ongoing topic of debate. Although the interest rate channel is the primary tool of central banks, numerous studies reveal persistent inertia in short-term bank credit, casting doubt on the effectiveness of monetary transmission. This study examines the transmission of monetary policy to bank credit for non-financial businesses in Morocco, adopting a dynamic, long-term approach. The empirical analysis is based on monthly data covering 2006–2023 and uses an ARDL–ECM model that distinguishes short-term dynamics from long-term adjustment mecha-nisms and incorporates structural breaks. The results indicate that variations in the policy rate do not have a significant effect on short-term bank credit, which confirms the weaken-ing of the traditional rate channel. However, this inertia is accompanied by a strong long-term equilibrium relationship between credit, monetary policy, and risk conditions. The results highlight a gradual monetary transmission, strongly influenced by credit risk and bank balance-sheet arbitrage. The apparent inefficiency of the short-term rate channel thus reflects a transmission modulated by prudential and structural constraints, rather than a breakdown of the monetary transmission mechanism.