Governance, Financial Development and Monetary Policy Transmission: Empirical Evidence from Lower and Upper Middle-Income Countries

Issaoui, Ibtissem (2022): Governance, Financial Development and Monetary Policy Transmission: Empirical Evidence from Lower and Upper Middle-Income Countries.

Abstract

Using a panel ARDL model, this study evaluated the long and short relationships between domestic credit, governance indicator quality, and finance development indicators. The results showed that better governance improves monetary policy transmission over the long term for the majority of specifications. Furthermore, finance development has a positive and significant impact. However, the results imply that the impact of central bank monetary policy on credit to the private sector is unclear for the vast majority of estimated specifications. This confirms that the bank credit channel models of Bernanke and Blinder (1988) fail to explain how monetary policy is transmitted in low- and middle-income countries.

• Item Type: MPRA Paper
• Language: English
• Keywords: Monetary policy transmission, governance, financial development, institu- tional quality, panel ARDL, emerging economies.
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth

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