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Comparing Bank Lending Channel in India and Pakistan

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Gupta, Abhay

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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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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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Find related papers by JEL classification:
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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  3. Christopher A. Sims, 1986. "Are forecasting models usable for policy analysis?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-16. [Downloadable!]
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  5. Maria Luisa Alcoforado Farinha & Carlos Robalo Marques, 2001. "The bank lending channel of monetary policy: identification and estimation using Portuguese micro bank data," Working Paper Series 102, European Central Bank. [Downloadable!]
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  6. Ozcicek, Omer & McMillin, W Douglas, 1999. "Lag Length Selection in Vector Autoregressive Models: Symmetric and Asymmetric Lags," Applied Economics, Taylor and Francis Journals, vol. 31(4), pages 517-24, April. [Downloadable!] (restricted)
  7. Gertler, Mark & Gilchrist, Simon, 1993. " The Role of Credit Market Imperfections in the Monetary Transmission Mechanism: Arguments and Evidence," Scandinavian Journal of Economics, Blackwell Publishing, vol. 95(1), pages 43-64.
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  8. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1993. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, March. [Downloadable!] (restricted)
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  9. Anil K Kashyap & Jeremy C. Stein, 1994. "The Impact of Monetary Policy on Bank Balance Sheets," NBER Working Papers 4821, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Ignacio Hernando & Jorge Martinez-Pages, 2001. "Is there a bank lending channel of monetary policy in Spain?," Working Paper Series 099, European Central Bank. [Downloadable!]
  11. Matthew D. Shapiro & Mark W. Watson, 1988. "Sources of Business Cycle Fluctuations," Cowles Foundation Discussion Papers 870, Cowles Foundation, Yale University. [Downloadable!]
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  12. 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). [Downloadable!]
  13. Tony Takeda & Fabiana Rocha & Márcio I. Nakane, 2005. "The Reaction of Bank Lending to Monetary Policy in Brazil," Revista Brasileira de Economia, Graduate School of Economics, Getulio Vargas Foundation (Brazil), vol. 59(1), April.
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