Examine the credit channel of the monetary policy transmission mechanism in an emerging market economy: the case of South Africa

Abstract

PurposeThe purpose of this study is to analyze commercial bank-level data to examine a credit channel of the monetary policy transmission mechanism in emerging economies, such as South Africa from BRICS countries. Among the important questions that central banks, economists and policymakers have raised in this area are: Do bank characteristics and macroeconomic variables influence credit supply in South Africa? Do bank characteristics and macroeconomic variables interact to influence credit supply in South Africa?Design/methodology/approachStatic panel data with pooled OLS, a random effect model and the fixed-effect model are used for data analysis. Using a sample of 50 commercial banks from South Africa over 10 years from 2009 to 2018. The statistical software Stata is utilized for data analysis.FindingsThe conclusion of this study shows that in South Africa, the loan amount has a strong and positive macroeconomic variable inflation effect. The outcomes of the study also revealed that in South Africa, there is a strong but negative association between interaction macroeconomic variables inflation and bank characteristic liquidity ratio on the loan amount.Originality/valueThe authors contribute to the existing literature by identifying the key determinants of monetary policy transmission channels through credit in South Africa and, furthermore, through a country-level data analysis and disaggregation at the commercial bank level, as well as economic conditions.