Conducting Monetary Policy in South Asian Economies: An Investigation

Khan, Muhammad Arshad; Ahmed, Ather Maqsood

doi:10.30541/v55i3pp.161-190

Cited by 5 publications

(7 citation statements)

References 59 publications

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“…However, the traditional Taylor type rule (interest rate channel) is not found to be effective in transmitting monetary policy shocks on the price level. Our results supports the earlier findings of Malik and Ahmed (2010) and Khan and Ahmed (2016). They also found the similar results for interest rate channel of monetary policy.…”

Section: Discussionsupporting

confidence: 93%

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Monetary Policy Transmission Mechanism of Pakistan: Evidence from Bank Lending and Asset Price Channels

Mukhtar

Younas

2019

Asian Journal of Economic Modelling

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The lending and asset price transmission channels remain largely unexplored since financial reforms and pursuance of market-based monetary policy instruments. This paper examines the monetary policy transmission mechanisms of Pakistan with a special focus on bank lending and asset price channels. Monthly data over the period 2000M7-2016M12 is being used for the short run analysis. The empirical investigation is based on SVAR framework. The results show that the monetary aggregates targeting agenda is still operative in effecting the output and general price level. Bank lending have a non-trivial part through the investment channel and share prices through wealth effect on price level and output, while the conventional interest rate channel seemed to be ineffective in the transmission mechanism process in Pakistan. The findings of generalized impulse response functions are backed by the generalized error forecast variance decomposition analysis. In addition to domestic variables, external shocks appear to have a strong influence on inflation and output in Pakistan.Contribution/ Originality: This study contributes in the existing literature by examining the monetary policy transmission mechanisms of Pakistan with a special focus on bank lending and asset price channels.

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Section: Discussionsupporting

confidence: 93%

“…AR roots table and AR roots graph of estimated SVAR system can be provided on demand Malik and Ahmed (2010). andKhan and Ahmed (2016) Also found similar results and concluded that SBP does not follow the Taylor Rule (i.e. interest rate) while formulating the monetary policy strategy.© 2019 AESS Publications.…”

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confidence: 60%

Monetary Policy Transmission Mechanism of Pakistan: Evidence from Bank Lending and Asset Price Channels

Mukhtar

Younas

2019

Asian Journal of Economic Modelling

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“…The empirical results have to be interpreted in the light of the monetary policy system prevalent in the SAARC member countries. Khan and Ahmad (2016) examine the framework of the conduct of monetary policy in Bangladesh, Pakistan, Sri Lanka and India by taking quarterly data over the period of 1990Q1 to 2012Q4. They document that besides pursuing a mild monetary stance against inflation, majority of the Central Banks in these countries are giving importance to foreign interest rate and real exchange rate movements in their policy formulation.…”

Section: Resultsmentioning

confidence: 99%

Dynamics of banking sector integration in South Asia: an empirical study

Pandey

Sehgal

Ahmad

2019

IGDR

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Purpose Banks in the South Asian region are the fulcrum of economic growth and development as they provide means to development credit and working capital, trade and infrastructure finance and are seen as custodians of the trust in the financial system. This paper aims to study the nature of banking sector linkages for the region. Design/methodology/approach The dependence structure between deposits and lending rates individually for the banks of the South Asian countries are studied using time invariant and time varying family of copula functions. The degree of connectedness is further studied by Diebold and Yilmaz methodology. Findings Results indicate poor levels of banking integration in the region as the dependence parameter for both deposits and lending rates was around 0 for the sample countries, thereby confirming poor banking sector integration in the region. Practical implications Policymakers of the region are interested in the co-movements of the interest rates to understand the cross-sector risk management and any systemic risk pressures for the regional economies. Corporates in these countries are scouting out for competitive borrowing rates to lower their cost of capital. Social implications Rationale for examining the banking sector linkages is that the South Asian countries are at different stages of economic growth and development and this region in particular is the fastest growing region in the world and has largely increased its trade integration with the world albeit having lowest levels of intra-regional trade integration. Originality/value This is a first of a kind of studies to examine the banking sector linkages in South Asia.

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“…According to the research, underdeveloped financial market, lack of sufficient financial instruments and interruption of the governments on central banks are responsible for such failure. Khan and Ahmed (2016) examined the way of monetary policy conduct of four Asian economies. The study reveals, Bangladesh does not accommodate inflation concern while setting monetary policy, rather the country substantially smoothens the interest rate for a quite longer period.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Contrary to this, Bangladesh policy rates care very little about inflation and thereby generating a series of real rates that do not have close resemblance with the nominal rates. Having weaker financial market as well as fewer money market instruments, Bangladesh monetary policy authority resorts to a cautious policy formulation (Khan & Ahmed, 2016). To avoid uncertainties, the country intends a fairly sticky and smoothened monetary policy interest rate.…”

Section: Introductionmentioning

confidence: 99%

Interest Rate Interactions between Bangladesh and the US: Possible Pass Through From the US

Islam¹,

Uddin²

2020

IBR

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This paper investigates the long run relationship between the interest rates of Bangladesh and the United Sates (US). Using time series quarterly data for the period 1972- 2019, the study finds that the nominal rate of the US positively influences the nominal rate of Bangladesh and they do maintain a long run relationship. Similar result is obtained by examining the real rates of both countries. However, in the latter case the study period covers from the third quarter of 1993 to the third quarter of 2019. Estimation of the error correction model signifies that in both cases policy rate of Bangladesh significantly responds to the error, which is the measure of deviation from long run equilibrium. Although interest rates of Bangladesh respond to the error in both cases, the speed of adjustment is much higher in case of the real rates. Empirical findings reveal that around 6% error is corrected in every quarter if it is nominal rate whereas in the event of real rate the rate of error correction is almost 77%. These findings indicate that small economy Bangladesh plans its policy rate taking account of the dynamics of the large economy the US, and such policy dependence is more apparent for real rate of interest.

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Conducting Monetary Policy in South Asian Economies: An Investigation

Cited by 5 publications

References 59 publications

Monetary Policy Transmission Mechanism of Pakistan: Evidence from Bank Lending and Asset Price Channels

Monetary Policy Transmission Mechanism of Pakistan: Evidence from Bank Lending and Asset Price Channels

Dynamics of banking sector integration in South Asia: an empirical study

Interest Rate Interactions between Bangladesh and the US: Possible Pass Through From the US

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