Effects of Bank Lending Channel on Emerging Market Economies: Empirical Evidence from Capital Market Sector

Abstract

This research aims to investigate the effects of the bank lending channel of monetary policy on capital markets in seventeen emerging market economies, which are comprised of bank-level data from 5589 banks and 76518 observations within the sample period from 2006 to 2021. This research concentrates on the bank lending channel because of the significant effect that banks have on the economy and financial markets. While monetary policy is vital and has various transmission channels into the actual economy, the bank lending channel will therefore, be the primary focus of this study. The study utilizes a dynamic panel model with sys-GMM and fixed effect model along with performing robustness checks, firstly by performing instrumental variable regressions and secondly by taking higher lags from the data sample. Among the countries included in the study, monetary policy has a negative impact on bank lending, while economic growth has a positive effect, according to the financial development indicators. The study findings suggest that the bank lending channel influences the capital markets.