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The effect of Bank competition on the effectiveness of the Interest Rate Channel of Monetary Policy Transmission

Patrick Chileshe () and Olusegun Akanbi

International Journal of Economic Sciences, 2016, vol. 5, issue 3, 10-32

Abstract: This study investigates the effect of bank competition on the interest rate pass-through in Zambia. Specifically, the study investigates whether lack of competition dampens the transmission of monetary policy changes to retail rates as well as its effects on the level of interest rates. The study developed a theoretical model based and tested it using dynamic panel data methods. Furthermore, the study used bank level data covering the period Q1 1998 to Q2 2015. The authors used two measures of bank competition namely HHI and Lerner Index The results from the study indicated that higher competition enhances the transmission of monetary policy changes to retail rates. In addition, results indicated that there is positive relationship between a measure of competition and lending rates charged by commercial banks. From a policy perspective, these results imply that there is need for more financial reforms aimed at enhancing competition in the banking sector in order to lower lending rates as well as enhancing monetary policy effectiveness.

Keywords: HHI; Boone Index; Lerner Index; Interest rate pass-through; monetary policy; Panel Data (search for similar items in EconPapers)
JEL-codes: E43 G21 L22 (search for similar items in EconPapers)
Date: 2016
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