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Impact of monetary policy on lending and deposit rates in Pakistan: Panel data analysis

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  • Mohsin, Hasan Muhammad

Abstract

The study estimates impact of monetary policy (discount rate) on lending and deposit rates in Pakistan using bank type data from November 2001 to March 2011. The study finds evidence of long run relationship between lending and discount rate but deposit rate is not cointegrated with discount rate, monetary policy instrument. The study also finds an increase in the lending rate pass through rate during restricted monetary policy times (2005-2010), whereas deposit rate pass through remains same. The study finds that overall banks pass on only 20% impact of a change in discount rate to the lenders in first month implying it is not complete. There is also significant difference in various bank types pass through rates. The pass through of deposit rate is further low at 0.16 as revealed by short run analysis. It implies that the effectiveness of monetary policy is limited in Pakistan.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33301.

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Date of creation: Jan 2011
Date of revision: Aug 2011
Handle: RePEc:pra:mprapa:33301
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Keywords: Discount rate; pass-through; monetary policy;

Find related papers by JEL classification:

  • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
  • E00 - Macroeconomics and Monetary Economics - - General - - - General

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  15. Mohsin, Hasan Muhammad & Rivers, P, 2011. "Are domestic banks' pass through higher than foreign banks? Empirical evidence from Pakistan," MPRA Paper 33282, University Library of Munich, Germany, revised Apr 2011.
  16. Kleimeier, Stefanie & Sander, Harald, 2006. "Expected versus unexpected monetary policy impulses and interest rate pass-through in euro-zone retail banking markets," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1839-1870, July.
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Cited by:

  1. Muhammad Omer & Jakob de Haan & Bert Scholtens, 2014. "Impact of Interbank Liquidity on Monetary Transmission Mechanism: A Case Study of Pakistan," SBP Working Paper Series 70, State Bank of Pakistan, Research Department.

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