Interest Rate Pass-Through: Empirical Evidence from Pakistan
AbstractThis article empirically examines the interest rate pass through mechanism for Pakistan, using six month treasury bills as a proxy for the policy rate (the exogenous variable) and the weighted average lending rate and weighted average deposit rate as endogenous variables representing the lending and deposit channels, respectively. We use data for a six year period from June 2005 to May 2011, published by the central monetary authority in Pakistan. The widely accepted error correction mechanism is used to examine the shortrun and long run pass-through; a vector error correction mechanism impulse response function helps measure the short run speed of the pass-through. We find that there is an incomplete pass-through in Pakistan for both the lending and deposit channels. The impact is greater on the lending channel than on the deposit channel in both the short and long run, while the adjustment speed is higher for the lending channel.
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Bibliographic InfoArticle provided by Department of Economics, The Lahore School of Economics in its journal Lahore Journal of Economics.
Volume (Year): 18 (2013)
Issue (Month): 1 (Jan-June)
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Interest rate pass-through; interest rate channel; transmission mechanism; monetary policy; Pakistan.;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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