Monetary Policy Transmission and Bank Credit: Evidence from Corporate and Household Lending in an Emerging Economy

This paper examines the transmission of monetary policy through bank credit by distinguishing between credit to non-financial corporations and household credit in an emerging economy. Using an ARDL–ECM framework with structural break analysis, it investigates the relationships between credit, the policy rate, and inflation over time. The results suggest that the conventional interest rate channel is limited, as the policy rate does not exhibit a statistically robust association with credit in either the short or long run. Inflation shows a differentiated and context-dependent association, remaining weak for corporate credit but more consistently related to household credit, which may reflect the role of nominal conditions in shaping borrowing behavior. Credit dynamics also differ across segments. Household credit appears more persistent and adjusts gradually, whereas corporate credit is less inertial but more sensitive to instability, pointing to heterogeneous adjustment processes. In addition, the estimated relationships are not stable over time, as their sensitivity to macroeconomic variables varies across periods. Overall, the findings indicate that monetary transmission is heterogeneous and time-varying rather than uniform. These results should be interpreted as conditional relationships within the empirical framework and provide a disaggregated perspective on how macroeconomic conditions are associated with credit dynamics in bank-based emerging economies.