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Monetary Policy and Bank Hetrogeneity: Effectiveness of Bank Lending Channel in Pakistan

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Listed:
  • Rahooja, Sabbah
  • Ali, Asif
  • Ahmed, Jameel
  • Hussain, Fayyaz
  • Rifat, Rizwana

Abstract

We investigate, using vector autoregressions (VAR) and Panel Data Analysis, the role of banks in monetary policy transmission in Pakistan. Empirical evidence suggests that the 'bank lending channel' is at work at the aggregate level. Loans, deposits and government securities all reduce after a shock to the monetary policy. When we examine bank heterogeneity in terms of size, liquidity and capitalization, the results are mixed. Size is found to be a relevant characteristic. Capitalization, measured by excess capital, is also somewhat effective. Thus, small sized and capital constrained banks respond more to monetary policy signals. Liquidity and the traditional measure of capital, on the other hand, are found to be weaker characteristics. Moreover, the results suggest that the market for loans has a stationary size distribution (no monopolistic tendencies) in Pakistan.

Suggested Citation

  • Rahooja, Sabbah & Ali, Asif & Ahmed, Jameel & Hussain, Fayyaz & Rifat, Rizwana, 2014. "Monetary Policy and Bank Hetrogeneity: Effectiveness of Bank Lending Channel in Pakistan," MPRA Paper 60473, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:60473
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    References listed on IDEAS

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    Cited by:

    1. Kabir, Anis & Abdul Rehman Shah, Syed Muhammad & Hassan, M. Kabir & Akmal, Muhammad, 2022. "The Transmission Mechanism of Monetary Policy via Bank’ Balance Sheet: An Empirical Study of Dual Banking System in Pakistan," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 56(2), pages 129-140.

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    More about this item

    Keywords

    Monetary Policy Transmission; Bank Lending;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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