The Relationship Between Economic Growth, Discount Rate, and Credits in the Republic of Azerbaijan: Empirical Evidence from ARDL Approaches
Babazade G. S.

Babazade, Govher Shakir. (2026) “The Relationship Between Economic Growth, Discount Rate, and Credits in the Republic of Azerbaijan: Empirical Evidence from ARDL Approaches.” The Problems of Economy 2:379–390.
https://doi.org/10.32983/2222-0712-2026-2-379-390

Section: Mathematical methods and models in economy

UDC 519.86

Abstract:
This article examines the relationship between bank credit, real gross domestic product (GDP), and the Central Bank’s discount rate in the Republic of Azerbaijan over the period from the first quarter of 2005 to the fourth quarter of 2024. The study is grounded in the theoretical framework of the monetary transmission mechanism, with particular emphasis on the credit channel, and aims to determine whether credit market dynamics are primarily driven by real economic activity or by monetary policy conditions. The stationarity of the variables was examined using unit root tests, which revealed different orders of integration among the series. Accordingly, the ARDL approach was employed to investigate long-run and short-run relationships through bounds testing and the Error Correction Model (ECM), while diagnostic and causality tests were conducted to assess model adequacy and causal linkages. The empirical findings confirm the existence of a statistically significant long-run cointegration relationship between bank credit, economic growth, and the discount rate. Real GDP exerts a positive and significant effect on credit expansion, suggesting that improvements in economic activity stimulate credit demand and support lending growth. In contrast, the discount rate has a negative impact on credit volumes, indicating that tighter monetary policy conditions constrain borrowing and reduce credit market activity. The findings contribute to the literature on credit market development in emerging economies and provide new empirical evidence regarding the determinants of bank lending in Azerbaijan. The results also offer policy implications for monetary authorities seeking to balance financial stability objectives with sustainable credit market development and long-term economic growth.

Keywords: bank lending; monetary policy; real sector; cointegration analysis; error correction model; time series analysis.

Fig.: 4. Tabl.: 8. Formulae: 4. Bibl.: 29.

Babazade Govher Shakir – Candidate on Doctor Degree, Department of Mathematical Economics, Baku State University (23 Academician Zahida Khalilova Str., Baku, Azerbaijan)
Email: govher.babazade@gmail.com

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