An empirical comparison of credit channel in emerging markets: evidence from five Asian economies

This paper examines the existence of credit channel in five Asian economies namely Malaysia, Indonesia, Thailand, Philippines and Korea. We estimate a variant of bank loan demand and supply model using a structural vector error correction (SVEC) model to deal with fundamental issue of identification problems. The empirical findings of the bank lending channel from these countries suggest that bank loans decline following the monetary contraction, consistent with the credit channel view. However, it is not clear whether the credit supply is really the binding constraint using the aggregate data, in the event that both credit supply and demand felt simultaneously following monetary policy shock. The results from the aggregate data cannot fully explain the monetary transmission via credit channel. Hence, employing firm-level data approach may shed further insights on the credit channel transmission mechanism.