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

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Listed author(s):
  • Mohsin, Hasan Muhammad
  • Rivers, P

Abstract

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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Keywords: Monetary policy; Treasury Bill rate; pass thropugh;

Find related papers by JEL classification:

  • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
  • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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Cited by:

  1. 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.
  2. Mohsin, Hasan Muhammad, 2011. "Impact of monetary policy on lending and deposit rates in Pakistan: Panel data analysis," MPRA Paper 33301, University Library of Munich, Germany, revised Aug 2011.

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