Money Transmission Mechanisms and Identified Long-Run Relationships between the Banking Sector's Balance Sheet and the Macroeconomy in Pakistan
AbstractThis paper employs semi-annual observations from 1964s1 to 2005s1 to evaluate the monetary transmission mechanism that has operated in Pakistan. It does so by using the familiar VAR approach and by analysing impulse responses and variance decompositions to banking sector and macroeconomic variables consequent upon innovations to the chosen indicator of monetary conditions. Those analyses demonstrate that the bank lending channel operates in Pakistan. The resultant VEC models embody cointegration; and this is used to identify long-run relationships between the variables. Observations are extended to 2008s2 to provide some indication of the out-of-sample quality of information provided by those relationships. Investigations using the Kalman filter provide evidence that, crucially, the innovations to the monetary indicators are influenced by sudden adjustments of monetary policy instruments.
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Bibliographic InfoPaper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number 10-21.
Length: 49 pages
Date of creation: Jul 2010
Date of revision:
monetary transmission mechanisms; disaggregation of bank loans; VARs; VECs; identified cointegration vectors; innovations to SBP's monetary instruments and monetary indicator innovations;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-31 (All new papers)
- NEP-BAN-2010-07-31 (Banking)
- NEP-MAC-2010-07-31 (Macroeconomics)
- NEP-MON-2010-07-31 (Monetary Economics)
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