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Financial Disintermediation in the 1990s : Implications on Monetary Policy in Malaysia

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  • Tan, Anthony C.K.
  • Goh, Kim-Leng

Abstract

The increased financial disintermediation that characterizes the Malaysia's financial system since the early 1990s has contributed towards changes in the dynamics of monetary transmission mechanism. Using quarterly data from 1980: 1 to 2005: 4, we found a greater effectiveness of monetary policy during the pre-1990:3 period, but the post-1990:3 period poses much difficulty for the conduct of monetary policy. Innovations in the financial market appeared to have led to lower output variability. Further, when the real interest rate is made a function of financial disintermediation, the real interest rate appeared to have lost its significance in influencing real variables in the post-1990: 3 period. This study did not, however, find evidence in support of the significance of the real interest rate in affecting real variables through the direct financing channel via the capital market.

Suggested Citation

  • Tan, Anthony C.K. & Goh, Kim-Leng, 2009. "Financial Disintermediation in the 1990s : Implications on Monetary Policy in Malaysia," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 50(1), pages 1-27, June.
  • Handle: RePEc:hit:hitjec:v:50:y:2009:i:1:p:1-27
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    References listed on IDEAS

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    Cited by:

    1. Perera, Anil & Ralston, Deborah & Wickramanayake, J., 2014. "Impact of off-balance sheet banking on the bank lending channel of monetary transmission: Evidence from South Asia," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 195-216.

    More about this item

    Keywords

    bank lending channel; capital market; cointegration; VAR;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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