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Monetary Transmission in Pakistan: The Balance Sheet Channel

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  • Shabbir, Safia
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    Abstract

    Using data of non-financial listed firms over a period of 1999-2010, this paper investigates the effectiveness of balance sheet channel in monetary transmission mechanism in Pakistan. By classifying firms as SME and large, this paper finds a strong evidence for the existence of net worth channel in Pakistan. A tight monetary policy worsens the net worth of both the SME and large firms, with SME getting more hit thereby further affecting their cash flows, short-term borrowing, and revenues.

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    File URL: http://mpra.ub.uni-muenchen.de/37862/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37862.

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    Date of creation: 02 Apr 2012
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    Handle: RePEc:pra:mprapa:37862

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    Related research

    Keywords: Monetary Policy; Monetary Transmission; Firm; Models with Panel Data;

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    1. Simona Mateut & Alessandra Guariglia, . "Credit channel, trade credit channel, and inventory investment: evidence from a panel of UK firms," Discussion Papers 05/02, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    2. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
    3. Gertler, Mark & Gilchrist, Simon, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 309-40, May.
    4. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    5. Tasneem Alam & Muhammad Waheed, 2006. "Sectoral Effects of Monetary Policy: Evidence from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(4), pages 1103-1115.
    6. Oliner, Stephen D & Rudebusch, Glenn D, 1996. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance: Comment," American Economic Review, American Economic Association, vol. 86(1), pages 300-309, March.
    7. Katrin Wesche, 2000. "Is there a Credit Channel in Austria? The Impact of Monetary Policy on Firms' Investment Decisions," Working Papers 41, Oesterreichische Nationalbank (Austrian Central Bank).
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