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Are domestic banks' pass through higher than foreign banks? Empirical evidence from Pakistan

  • Mohsin, Hasan Muhammad
  • Rivers, P

This study contributes to the literature by estimating Interest Rate Pass Through (IRPT) using Pakistani aggregate banks’ lending and deposit rate data. Lending and deposit rates are estimated to be sluggish in terms of their response to a change in monetary policy rate. There is also evidence of asymmetry in the pass through of four types of banks (i.e., privatized, nationalized, foreign and specialized). Overall, the domestic banks’ pass through is estimated to be higher than that of foreign bank. Although the IRPT is estimated to be incomplete, the degree of lending rate pass- through is not very low. This study provides evidence of an increase in the adjustment speed when the lending rate is below equilibrium after January 2005. However, there was no significant change in the pass through after January 2005 which coincided with the constant increase in the Treasury bill rate by the State Bank of Pakistan.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33282.

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Date of creation: Jan 2011
Date of revision: Apr 2011
Handle: RePEc:pra:mprapa:33282
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  2. M. van leuvensteijn & C. Kok Sorensen & J.A. Bikker & A.A.R.J.M. van Rixtel, 2008. "Impact of bank competition on the interest rate pass-through in the euro area," DNB Working Papers 171, Netherlands Central Bank, Research Department.
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  16. Boris Hofmann & Paul Mizen, 2004. "Interest Rate Pass-Through and Monetary Transmission: Evidence from Individual Financial Institutions' Retail Rates," Economica, London School of Economics and Political Science, vol. 71, pages 99-123, 02.
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