The nexus between financial development and monetary policy: Case study

• Financial development diminishes the effectiveness of monetary policy transmission via bank lending channels. • Financial development on the bank lending channel supply reaction to monetary policy shocks varies according to individual bank characteristics. • Financial development is the main component in monetary policy transmission via bank lending channels. • The changes in the policy rate in economies with more financial development induce larger changes (in the same direction) in deposit rates. • Financial development stabilizes the monetary policy transmission through bank lending channels. Despite challenging financial development (FD) conditions in west Africa economic and monetary union (WAEMU), Côte d'Ivoire remains the WAEMU fastest-growing major economy. This development may raise concerns about the effects of FD and monetary policy transmission (MPT) via the blank lending channel (BLC). This case study attempts to analyze the interaction between FD and MPT through BLC in Côte d'Ivoire. The study adopts a two-step technique, the generalized method of moments (GMM) estimation, for panel data analysis. The panel analyzed consists of commercial banks and covers 2007 to 2020. The empirical findings indicate that financial development diminishes the effectiveness of the MPT via BLC, suggesting banks' access to financial instruments and external funding sources. The impact of the FD on the BLC supply's reaction to monetary policy shocks varies according to individual bank characteristics. The research highlights significant findings about an understudied country, indicating that policymakers should account for financial development while managing the BLC supply in relation to monetary policy pass-through.