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Comparing Bank Lending Channel in India and Pakistan

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  • Gupta, Abhay

Abstract

This paper investigates the presence and significance of bank lending channel of the monetary policy transmission in India and Pakistan using the Structural Vector Auto Regression (SVAR) approach. The results of econometric analysis support the presence of a significant bank lending channel in these countries. Changes in the monetary policy instruments affect the credit variable (private sector claims) which in turn transmits the shocks to the real side of the economy, i.e. output and prices. The output returns back to initial level in long run, while the effect of monetary policy changes on prices are persistent. I also find that compared to the bank lending in other developing countries the channel in these countries is different and more vital. Another finding is that apart from interest rates, money also seems to play an important role in these economies and its shocks are significantly transmitted to the real macroeconomic activities through changes in the credit variable.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9281.

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Date of creation: Nov 2004
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Handle: RePEc:pra:mprapa:9281

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  1. Luísa Farinha & Carlos Robalo Marques, 2002. "The bank lending channel of monetary policy: identification and estimation using Portuguese micro bank data," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 A4-3, International Conferences on Panel Data.
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  7. Ignacio Hernando & Jorge Martinez-Pages, 2001. "Is there a bank lending channel of monetary policy in Spain?," Working Paper Series 099, European Central Bank.
  8. Charles Evans & Kenneth Kuttner, 1998. "Can VARs describe monetary policy?," Research Paper 9812, Federal Reserve Bank of New York.
  9. Omer Ozcicek & W. DOUGLAS McMILLIN, 1999. "Lag length selection in vector autoregressive models: symmetric and asymmetric lags," Applied Economics, Taylor and Francis Journals, vol. 31(4), pages 517-524.
  10. Matthew D. Shapiro & Mark W. Watson, 1989. "Sources of Business Cycle Fluctuations," NBER Working Papers 2589, National Bureau of Economic Research, Inc.
  11. Stephen D. Oliner & Glenn D. Rudebusch, 1995. "Is there a bank lending channel for monetary policy?," Economic Review, Federal Reserve Bank of San Francisco, pages 1-20.
  12. W. Douglas McMillin, 2001. "The Effects of Monetary Policy Shocks: Comparing Contemporaneous versus Long-Run Identifying Restrictions," Southern Economic Journal, Southern Economic Association, vol. 67(3), pages 618-636, January.
  13. Ignacio Hernando & Jorge Martínez Pagés, 2001. "Is There a Bank Lending Channel of Monetary Policy in Spain?," Banco de España Working Papers 0117, Banco de España.
  14. Norrbin, Stefan, 2001. "What Have We Learned from Empirical Tests of the Monetary Transmission Effect," Working Paper Series 121, Sveriges Riksbank (Central Bank of Sweden).
  15. Bennett T. McCallum, 1999. "Analysis of the Monetary Transmission Mechanism: Methodological Issues," NBER Working Papers 7395, National Bureau of Economic Research, Inc.
  16. Tony Takeda & Fabiana Rocha & Márcio Nakane, 2003. "The Reaction of Bank Lending to Monetary Policy in Brazil," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] b30, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
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