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The Impact of Monetary Policy on Lending and Deposit Rates in Pakistan: Panel Data Analysis

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  • Hasan Muhammad Mohsin

    () (Pakistan Institute of Development Economics (P.I.D.E), Islamabad, Pakistan.)

Abstract

This study estimates the impact of monetary policy on lending and deposit rates in Pakistan, using bank data for the period November 2001 to March 2011. We find evidence of a long-run relationship between the lending and discount rate, but the deposit rate is not co-integrated, and the pass-through is not complete. The study finds that, overall, banks pass on only 20 percent of the impact of a change in the discount rate to lenders in the first month. There is also a significant difference among various banks’ pass-through rates. A shortrun analysis reveals that the pass-through of the deposit rate is low at 0.16, which implies that the effectiveness of monetary policy is limited in Pakistan.

Suggested Citation

  • Hasan Muhammad Mohsin, 2011. "The Impact of Monetary Policy on Lending and Deposit Rates in Pakistan: Panel Data Analysis," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 199-213, September.
  • Handle: RePEc:lje:journl:v:16:y:2011:i:sp:p:199-213
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    References listed on IDEAS

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    Cited by:

    1. Muhammad, Omer & de Haan, Jakob & Scholtens, Bert, 2014. "Impact of Interbank Liquidity on Monetary Transmission Mechanism: A Case Study of Pakistan," MPRA Paper 56161, University Library of Munich, Germany.

    More about this item

    Keywords

    Monetary Policy; Lending; Deposit Rates; Pakistan.;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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