Interest Rate Pass-through in Pakistan: Evidence from Transfer Function Approach
AbstractThe influence of monetary policy upon real output and the inflation rate is well established. The influence is exercised through the transmission mechanism of monetary policy. This study has examined the pass-through of Treasury Bill rate to money market rate (Call Money rate), Banks’ Deposit rate and Banks’ Lending rate. The broader conclusion is that pass-through from Treasury Bill rate to Call money rate is completed during the first month. However pass-through from Treasury Bill rate to Deposit rates and the Lending rate takes much longer, that is, these rates exhibit rigidity. The results are in conformity with the empirical evidence in the relevant literature for other countries. In practice, the pass-through to the deposit and the lending rates is expected to be quicker than evidenced in this study. The reason is that the study uses weighted average deposit and lending rate. Given that the weighted average rate takes into account outstanding deposit/loans contracted at previous rates as well, (besides the fresh deposit/loans contracted at new rates) this tends to tone down the pass-through.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 2056.
Date of creation: 2005
Date of revision: 2005
Publication status: Published in The Pakistan Development Review 4.44(2005): pp. 975-1001
Monetary policy; Interest Pass through; transmission mechanism; pakistan;
Other versions of this item:
- Abdul Qayyum & Sajawal Khan & Idrees Khawaja, 2005. "Interest Rate Pass-through in Pakistan: Evidence from Transfer Function Approach," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(4), pages 975-1001.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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