Gupta, Abhay (2004): Comparing Bank Lending Channel in India and Pakistan.
Download (428Kb) | Preview
This paper investigates the presence and significance of bank lending channel of the monetary policy transmission in India and Pakistan using the Structural Vector Auto Regression (SVAR) approach. The results of econometric analysis support the presence of a significant bank lending channel in these countries. Changes in the monetary policy instruments affect the credit variable (private sector claims) which in turn transmits the shocks to the real side of the economy, i.e. output and prices. The output returns back to initial level in long run, while the effect of monetary policy changes on prices are persistent. I also find that compared to the bank lending in other developing countries the channel in these countries is different and more vital. Another finding is that apart from interest rates, money also seems to play an important role in these economies and its shocks are significantly transmitted to the real macroeconomic activities through changes in the credit variable.
|Item Type:||MPRA Paper|
|Original Title:||Comparing Bank Lending Channel in India and Pakistan|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates
|Depositing User:||Abhay Gupta|
|Date Deposited:||24. Jun 2008 01:42|
|Last Modified:||12. Feb 2013 12:00|
Agung, Juda “ Financial Deregulation And Bank Lending Channel in Developing Countries: The Case of Indonesia” Asian Economic Journal 1998, Vol. 12 No. 3 .. Alfaro, Rodrigo, Helmut Franken, Carlos García, and Alejandro Jara. “Bank Lending Channel And The Monetary Transmission Mechanism: The Case Of Chile” Central Bank of Chile Working Papers No. 223 August 2003 .. Ashcraft, Adam B. “New Evidence on the Lending Channel”, Federal Reserve Bank of New York, Staff Reports, No 136, September, 2001 .. Atta-Mensah, Joseph and Ali Dib. “Bank Lending, Credit Shocks, and the Transmission of Canadian Monetary Policy” Bank of Canada, Working Paper 2003-9, April 2003. .. Bagliano, Fabio C. and Carlo A. Favero. “ Measuring monetary policy with VAR models: an Evaluation”, CEPR, Discussion Paper Series No. 1743, November 1997 .. Baum, Christopher F., Mustafa Caglayan and Neslihan Ozkan. “Re-examining the Transmission of Monetary Policy: What More Do a Million Observations Have to Say”. Boston College Working Papers in Economics, No 561, June , 2003 .. Bernanke, B. S. “Alternative Explanations of the Money-Income Correlation,”Carnegie Rochester Conference Series, 25, 1986. .. Bernanke, Ben S. and Ilian Mihov “Measuring Monetary Policy” The Quarterly Journal of Economics, August 1998. .. Blanchard, Olivier J. and Danny Quah, “The Dynamic Effects of Aggregate Demand and Supply Disturbances.” American Economic Review 79, pp. 655-73. 1989. .. Blanchard, O., and M. Watson. “Are Business Cycles Alike?,” in The American Business Cycle, ed. by R. J. Gordon. University of Chicago Press, Chicago, 1986.
Brischetto, Andrea and Graham Voss. “A Structural Vector Autoregression Model Of Monetary Policy In Australia” Research Discussion Paper 1999-11 December 1999 Economic Research Department Reserve Bank of Australia. Dressler, Scott. “The Asymmetry of the Bank Lending Channel” April 2004 Ehrmann, Michael. “Interbank lending and monetary policy transmission: evidence for Germany” Andreas WormsDiscussion paper 11/01 Economic Research Centre of the Deutsche Bundesbank July 2001. Evans, Charles L. and Kenneth N. Kuttner. “Can VARs Describe Monetary Policy?” Federal Reserve Bank of New York, Research Paper No 9812, 1998. Farinha, Luísa and Carlos Robalo Marques. “The Bank Lending Channel Of Monetary Policy: Identification And Estimation Using Portuguese Micro Bank Data.” ECB Working Paper No. 102, December 2001. Gali, Jordi "How Well Does the IS-LM Model Fit Postwar U.S. Data?" The Quarterly Journal of Economics 107, pp. 709-738. 1992. Garretsen, Harry and Job Swank. “The Bank Lending Channel in the Netherlands: The Impact of Monetary Policy on Households and Firms”. De Economist, March 2003, vol. 151, issue 1, pp. 35-51(17). Gertler, Mark and Simon Gilchrist. "The Role of Credit Market Imperfections in the Monetary Transmission Mechanism: Arguments and Evidence." Scandinavian Journal of Economics. 95/1. 1993. Gottschalk, Jan. “An Introduction into the SVAR Methodology: Identification, Interpretation and Limitations of SVAR models”. Kiel Working Paper No. 1072 August 2001 Haan, Leo De. “The Credit Channel In The Netherlands: Evidence From Bank Balance Sheets” European Central Bank, Working Paper Series, Eurosystem Monetary Transmission Network, Working Paper No. 98, December 2001
Hardy, Daniel C and Emilia Bonaccorsi di Patti. “Bank Reform and Bank Efficiency in Pakistan” IMF Working Paper WP/01/138, 2001. Havrylchyk, Olena and Emilia Jurzyk. “Does the Bank Lending Channel Work in a Transition Economy? A Case of Poland” Working Paper, 2003. Hernando, Ignacio and Jorge Martínez Pagés. “Is There A Bank Lending Channel Of Monetary Policy In Spain?” ECB Working Paper No. 99, December 2001. Italiano, Joe. “An Empirical Search for a Canadian Credit Channel” Department of Finance Working Paper 2001-15 Jacobson, Tor, Per Jansson, Anders Vredin and Anders Warne. “ A Var model For Monetary Policy Analysis In A Small Open Economy”. Central Bank of Sweden Working Paper No 77, February 1, 1999. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, 1993. Kashyap, Anil and Jeremy C. Stein. “Monetary Policy and Bank Lending” NBER Studies in Business Cycles, Vol. 29, 1994. Kashyap, Anil K and Jeremy C. Stein. “The impact of monetary policy on bank balance sheets.” NBER Working Paper No. W4821, August 1994. Kashyap, Anil K and Jeremy C. Stein. “The role of banks in monetary policy: A survey with implications for the European monetary union” Federal Reserve Bank of Chicago Economic Perspectives. Sept.-Oct. 1997. Kashyap, Anil and Jeremy C. Stein. “What Do a Million Observations on Banks Say About the Transmission of Monetary Policy? The American Economic Review June 2000
Keating, John W. “Structural Approaches to Vector Auto regressions”. The Federal Reserve Bank of St. Louis Review, Vol. 74, No. 5, September/ October 1992 Kim, Keuk-Soo and W. Douglas McMillin. “Estimating the Effects of Monetary Policy Shocks: Does Lag Structure Matter?” Applied Economics, 35 (September 2003). Levine, Ross. “Financial Development and Economic Growth: Views and Agenda,” Journal of Economic Literature, June 1997, 35(2), pp. 688-726. McCallum, Bennett T. “Analysis of the Monetary Transmission Mechanism: Methodological Issues” NBER Working Paper No. W7395, October 1999. McMillin, W. Douglas and Omer Ozcicek. “Lag Length Selection in Vector Autoregressive Models: Symmetric and Asymmetric Lags” Applied Economics, 31 (April 1999). McMillin, W. Douglas. “The Effects of Monetary Policy Shocks: Comparing Contemporaneous Versus Long-Run Identifying Restrictions” Southern Economic Journal, 67 (January 2001). Nakane, Márcio I., Fabiana Rocha and Tony Takeda. “The reaction of bank lending to monetary policy in Brazil” Proceedings of the 31th Brazilian Economics Meeting, 2003. Norrbin, Stefan. “What Have We Learned From Empirical Tests Of The Monetary Transmission Effect?” Central Bank of Sweden, Working Paper No. 121, February 2001. Oliner, Stephen D. and Glenn D. Rudebusch. “Is there a bank lending channel for Monetary Policy?” Federal Reserve Bank of San Francisco, 1995 Number 2. Sims, C. A. “Are Forecasting Models Usable for Policy Analysis?” Quarterly Review of the Federal Reserve Bank of Minneapolis, (Winter), 1–16, 1986. Sims, C. A. “Interpreting the macroeconomic time series facts: The effect of monetary policy” Cowles Foundation Paper 823 European Economic Review 36 (1992). Shapiro, Matthew D. and Mark W. Watson. "Sources of Business Cycle Fluctuations" NBER Macroeconomics Annual 1988. Cambridge: MIT Press. p. 111-156. 1988.
Smant, David J. “Bank credit in the transmission of monetary policy: A critical review of the issues and evidence” Working Paper 2003. Schmitz, Birgit. “What Role do Banks play in Monetary Policy Transmission in EU Accession Countries?” SMYE Meeting, Katholieke Universiteit Leuven, 2003. Westerlund, Joakim, “A Panel Data Test of the Bank Lending Channel in Sweden” Working Papers, Department of Economics, Lund University, No 2003:16.