Mohsin, Hasan Muhammad and Rivers, P (2011): Are domestic banks' pass through higher than foreign banks? Empirical evidence from Pakistan. Forthcoming in: International Journal of Economics and Finance , Vol. 3, No. 6 (November 2011)
Download (299kB) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||Are domestic banks' pass through higher than foreign banks? Empirical evidence from Pakistan|
|Keywords:||Monetary policy, Treasury Bill rate, pass thropugh|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models
|Depositing User:||Hasan Muhammad Mohsin|
|Date Deposited:||10. Sep 2011 14:49|
|Last Modified:||13. Feb 2013 05:29|
Baltagi Badi H. (2000) “Non stationary panels, panel cointegration and dynamic panels: Advances in Econometrics, Vol. 15. ELSEVIER SCIENCE inc.
Bernanke, B., and Alan Blinder (1992) “Credit, Money, and Aggregate Demand” American Economic Review 82, 901–21
Bernanke, B., and Mark Gertler (1995) Inside the Black Box: The Credit Channel of Monetary Policy Transmission. Journal of Economic Perspectives 9:4, 27–48.
Bondt, G. (2002) Retail Bank Interest Rate Pass-through: New Evidence at the Euro Area Level. Frankfurt: European Central Bank. (ECB Working Paper No. 136.)
Cottarelli, C., and Angeliki Kourelis (1994) “Financial Structure, Bank Lending Rates, and the Transmission Mechanism of Monetary Policy” IMF Staff Papers 41:4, 587–623.
Gropp Kok Sørensen, and Lichtenberger(2007) " The Dynamics of Bank spreads and Financial Structure." European Central Bank, Working paper series no. 714.
Hanan, T., and Allen Berger (1991) The Rigidity of Prices: Evidence from the Banking Industry. American Economic Review 81:4, 938–945.
Mishkin, Frederic S. (1995) Symposium on the Monetary Transmission Mechanism. Journal of Economic Perspectives 9:4, 3–10.
Hofmann, B., Mizen, P., 2004. Interest rate pass-through and monetarytransmission: Evidence from individual financial institutions’ retailrates. Economica 71, 99–123.
Gulsewig Oliver et al (2006) “Bank loan supply and monetary policy transmission in Germany: An assessment based on matching impulse responses.” Journal of Banking and Finance 30 (2006) 2893-2910.
Kashyap, A.K., Stein, J., 2000. What do a million observations on bankssay about the transmission of monetary policy? American EconomicReview 86, 310–314.
Kleimeier, S., Sander, H., 2006. Expected versus unexpected monetarypolicy impulses and interest rate pass through in euro zone’s retail banking markets. Journal of Banking and Finance30, 1839–1870.
Leuvensteijn Michiel van et al (2008) “Impact of bank competition on the interest rate pass through in the Euro area.” European Central Bank, Working Paper Series NO 885 / MARCH 2008
Leuven and Leuven (2001)” Bank lending rate pass through and differences in transmission of a single EMU monetary policy.” Katholieke University, Center for Economic studies discussion paper series (DPS)01.17
Levin, Lin and Chu (LLC, 2004)” Unit root tests in panel data: asymptotic and finite sample properties.” Journal of Econometrics 108 (2002) 1-24
Liu M.H et al (2008) “Monetary Policy transparency and pass through of retail interest rates.” Journal of Banking & Finance 32 (2008) 501–511
Mojon, B. (2000) “Financial Structure and the Interest Rate Channel of ECB Monetary Policy” Frankfurt: European Central Bank (ECB Working Paper No. 40)
Orsal Deniz Dilan Karaman (2007)” Comparison of Panel Cointegration tests”. SBF 649 Discussion Paper 2007-029 Humboldt-Universität zu Berlin, Germany
Pedroni Peter (2004)” Panel Cointegration: Asymptotic and Finite sample properties of pooled time series with an application to the PPP hypothesis”. Econometric Theory 20, 2004, 597-625
Pedroni Peter (1999)” Critical values for cointegration tests in heterogeneous panels with multiple regressors.” Oxford Bulletin of Economics and Statistics, special issue (1999)
Phillips, P.C.B., Loretan, M., 1991. Estimating long-run equilibria. TheReview of Economic Studies 58, 407–436
Qayyum, Khan and Khawaja (2005) " Interest rate pass through in Pakistan: Evidence from Transfer Function Approach. The Pakistan Development Review 44: 4 Part II (Winter 2005)
Romer, C., and D. Romer (1989) Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz. NBER Macroeconomic Annual 4, 121–170
Sander and Kleimeir (2004)”Interest rate pass through in an enlarged Europe: the role of banking market structure for monetary policy transmission in transitional countries.” Unpublished Mimeo
Tieman Alexander (2004)” Interest rate pass through in Romania and other Central European economies”. IMF Working Paper WP/04/211.
Vega, E., and Alessandro Rebucci (2003) Retail Bank Interest Rate Pass-through: Is Chile Atypical? International Monetary Fund (IMF Working Paper (WP/03/112)