Asymmetric Effects in the Risk-Taking Channel of Monetary Policy Transmission in Iraq

This study examines the asymmetrical impacts of monetary policy transmission on the risk-taking channel in Iraq. Monthly data from Jan. 2005 to Dec. 2019 was utilized; the study employs Nonlinear Autoregressive Distributed Lag (NARDL) estimations to analyze the asymmetrical relationship between monetary policy variables (interest rates, cash reserve requirements, and money supply) and risk-taking channel (bank debt). The F-bound test finds no evidence of a long-run relation between monetary policy and banks' risk-taking channel, while the ECM test confirmed the short-run relation. Furthermore, the Wald test results indicated the presence of asymmetric effects of cash reserve requirements and money supply shocks on bank debt. In contrast, interest rate shocks reveal a symmetric impact, meaning monetary policy shocks affect banks' lending channels differently. This study illuminates the complexities of Iraq's banking industry. It provides important implications for policymakers and financial institutions in handling bank debt in developing market situations and the transmission of monetary policy.