Does Credit Expansion Trigger Inflation? An Empirical Analysis of the Credit Channel of Monetary Transmission in OECD Countries

One of the primary objectives of central banks is to ensure price stability, and to this end, they influence the volume of credit through the monetary policies they implement. One of the monetary transmission mechanisms, known as bank credit channel, is a process where loans provided through monetary policy affect the real economy and inflation. In this study, the relationship between domestic bank credit to the private sector and inflation in 16 OECD countries is analyzed within the framework of the monetary transmission mechanism using panel data analysis with annual data covering the period 2010-2023. The Pedroni panel cointegration test and the Dumitrescu-Hurlin panel causality test were conducted. According to the cointegration test results, it is concluded that there is a long-run cointegration relationship between money supply, bank credits and inflation. According to the causality test results, a unidirectional causality relationship was found from bank credits to inflation. The findings indicate that bank credit affects inflationin both the long run and the short run, and that the bank credit channel operates effectively in the long run. Jel codes : C23, E31, E51