Heterogeneous Adjustment in Monetary Transmission: Short-Run Evidence from an Emerging Market on Bank Equity Valuations, Balance Sheets, and Inflation

This paper examines the short-run dynamics of monetary policy transmission in a bank-dominated emerging economy, with a focus on the relative timing of adjustments across financial valuations, balance-sheet aggregates, and inflation. Using monthly data over the period 2018–2024, the analysis relies on a reduced-form VAR framework. The results indicate that monetary policy innovations are more rapidly reflected in bank equity valuations proxied by the MASI banking index at short horizons, while balance-sheet variables exhibit more limited and less persistent adjustments. Inflation dynamics remain difficult to identify clearly within the short-run horizon, consistent with the gradual nature of price adjustments. These findings suggest that financial variables react more quickly to monetary policy innovations, while credit and macroeconomic variables adjust more gradually due to institutional constraints, risk considerations, and nominal rigidities. This pattern reflects heterogeneous adjustment speeds across variables rather than a structurally identified transmission mechanism. This paper provides evidence on the timing of short-run adjustments across financial and macroeconomic variables, highlighting the importance of temporal dynamics in the analysis of monetary transmission.