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Policy rate pass-through and the adjustment of retail interest rates: Empirical evidence from Malaysian financial institutions

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  • Zulkhibri, Muhamed

Abstract

The paper examines the interest rate pass-through from money market rates to various retail rates in Malaysia within the framework of an error-correction model. We estimate the short- and long-run interest rate pass-through and analyse the asymmetric behaviour of financial institutions under different monetary regimes. The results show that both deposit and lending rate pass-throughs are incomplete. However, pass-through and speed of adjustment vary across financial institutions and retail rates. This analysis also shows that interest rate adjustments are asymmetric, with more significant adjustments taking place under monetary easing than under monetary tightening. These results provide support for the existence of the interest rate channel of monetary policy in Malaysia. There is thus a need to conduct effective monetary operations to support efficient monetary transmission in Malaysia.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 23 (2012)
Issue (Month): 4 ()
Pages: 409-422

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Handle: RePEc:eee:asieco:v:23:y:2012:i:4:p:409-422

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Web page: http://www.elsevier.com/locate/asieco

Related research

Keywords: Interest rate pass-through; Price rigidity; Monetary policy; Malaysia;

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Cited by:
  1. Hussan, Subithabhanu & Masih, Mansur, 2014. "Are The Profit Rates of the Islamic Investment Deposit Accounts Truly Performance Based? A Case Study of Malaysia," MPRA Paper 57689, University Library of Munich, Germany.

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