Monetary Policy and Bank Hetrogeneity: Effectiveness of Bank Lending Channel in Pakistan

Sabbah Rahooja, Asif Ali, Jameel Ahmed, Fayyaz Hussain and Rizwana Rifat

MPRA Paper from University Library of Munich, Germany

Abstract: We investigate, using vector autoregressions (VAR) and Panel Data Analysis, the role of banks in monetary policy transmission in Pakistan. Empirical evidence suggests that the 'bank lending channel' is at work at the aggregate level. Loans, deposits and government securities all reduce after a shock to the monetary policy. When we examine bank heterogeneity in terms of size, liquidity and capitalization, the results are mixed. Size is found to be a relevant characteristic. Capitalization, measured by excess capital, is also somewhat effective. Thus, small sized and capital constrained banks respond more to monetary policy signals. Liquidity and the traditional measure of capital, on the other hand, are found to be weaker characteristics. Moreover, the results suggest that the market for loans has a stationary size distribution (no monopolistic tendencies) in Pakistan.

Keywords: Monetary Policy Transmission; Bank Lending (search for similar items in EconPapers)
JEL-codes: C32 C33 E52 G21 (search for similar items in EconPapers)
Date: 2014-12-09
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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