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Monetary Transmission in Pakistan: The Balance Sheet Channel

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  • Shabbir, Safia

Abstract

Using data of non-financial listed firms over a period of 1999-2010, this paper investigates the effectiveness of balance sheet channel in monetary transmission mechanism in Pakistan. By classifying firms as SME and large, this paper finds a strong evidence for the existence of net worth channel in Pakistan. A tight monetary policy worsens the net worth of both the SME and large firms, with SME getting more hit thereby further affecting their cash flows, short-term borrowing, and revenues.

Suggested Citation

  • Shabbir, Safia, 2012. "Monetary Transmission in Pakistan: The Balance Sheet Channel," MPRA Paper 37862, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:37862
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    File URL: https://mpra.ub.uni-muenchen.de/37862/1/MPRA_paper_37862.pdf
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    References listed on IDEAS

    as
    1. Mark Gertler & Simon Gilchrist, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 309-340.
    2. Oliner, Stephen D & Rudebusch, Glenn D, 1996. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance: Comment," American Economic Review, American Economic Association, vol. 86(1), pages 300-309, March.
    3. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    4. Guariglia, Alessandra & Mateut, Simona, 2006. "Credit channel, trade credit channel, and inventory investment: Evidence from a panel of UK firms," Journal of Banking & Finance, Elsevier, vol. 30(10), pages 2835-2856, October.
    5. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    6. Katrin Wesche, 2000. "Is there a Credit Channel in Austria? The Impact of Monetary Policy on Firms' Investment Decisions," Working Papers 41, Oesterreichische Nationalbank (Austrian Central Bank).
    7. Shah Hussain & Amna Saeed & Amer Hassan, 2011. "The Financial Accelerator: An Emerging Market Story," SBP Working Paper Series 41, State Bank of Pakistan, Research Department.
    8. Karrar Hussain, 2009. "Monetary Policy Channels of Pakistan and Their Impact on Real GDP and Inflation," CID Working Papers 41, Center for International Development at Harvard University.
    9. Tasneem Alam & Muhammad Waheed, 2006. "Sectoral Effects of Monetary Policy: Evidence from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(4), pages 1103-1115.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Monetary Policy; Monetary Transmission; Firm; Models with Panel Data;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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