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Bank lending and monetary policy: the effects of structural shift in interest rates

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  • Kim-Leng Goh

    ()
    (University of Malaya)

  • Sook-Lu Yong

    ()
    (University of Malaya)

Abstract

This paper provides evidence to show that the interest rate regime adopted by the monetary authority plays an important role in determining the effectiveness of the transmission mechanism of monetary policy via bank lending channel using Malaysian data. As part of the strategy to deal with the recent financial crisis, the Malaysian government introduced capital control measures which subsequently led to a structural shift in interest rates. Before the shift, interest rates were relatively high. The contractionary monetary policy achieved desirable results through the bank lending channel. However, responses of bank lending to interest rate changes were limited after the structural shift which characterises a period of low interest rate regime, rendering the bank lending channel ineffective.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 5 (2007)
Issue (Month): 5 ()
Pages: 1-14

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Handle: RePEc:ebl:ecbull:eb-06e50008

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  9. Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers, C.V. Starr Center for Applied Economics, New York University 95-15, C.V. Starr Center for Applied Economics, New York University.
  10. Anita Doraisami, 2004. "From crisis to recovery: the motivations for and effects of Malaysian capital controls," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(2), pages 241-254.
  11. Jan Kakes, 2000. "Identifying the mechanism: is there a bank lending channel of monetary transmission in the Netherlands?," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 7(2), pages 63-67.
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