Short-Run Inertia and Long-Run Adjustment in Bank Credit: An ARDL–ECM Analysis of Monetary Transmission in an Emerging Economy

Abstract

This study examines the transmission of monetary policy to bank credit granted to the non-financial private sector in Morocco, a bank-dominated emerging economy where non-financial corporations play a central role in investment, employment, and economic growth. Using monthly data over the period 2006–2023, the analysis relies on an ARDL–ECM framework that distinguishes short-run credit dynamics from long-run adjustment processes while accounting for potential structural breaks. The results indicate that changes in the policy rate do not exert a statistically significant effect on bank credit in the short run, suggesting a high degree of credit inertia. The bounds test supports the existence of a stable long-run equilibrium relationship in credit, although no significant long-run elasticities with respect to monetary policy or credit risk variables are identified. Instead, credit dynamics appear to be driven primarily by short-run adjustment mechanisms, largely shaped by credit risk and balance-sheet allocation. Overall, these findings suggest that monetary transmission in Morocco operates gradually and indirectly, mainly through prudential and balance-sheet channels rather than the conventional interest-rate channel. This implies that the effectiveness of monetary policy depends critically on prevailing risk conditions and their interaction with prudential frameworks in bank-based emerging financial systems.