Do firms react to monetary policy in developing countries?

This paper examines how firms in developing countries respond to changes in monetary policy. Using data from the World Bank Enterprise Surveys and a newly constructed database of policy changes, the study finds that firms perceive credit access as more restrictive immediately following a monetary tightening. Monetary policy also affects managers' decisions to apply for loans. The research identifies significant variations in firms' reactions based on their proximity to banks. Additionally, monetary policy transmission is higher in less liquid banking systems and when monetary policy is more credible.