Does bank capital affect the monetary policy transmission mechanism? A case study of Emerging Market Economies (EMEs)

Zia Abbas, Syed Faizan Iftikhar () and Shaista Alam
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Zia Abbas: Applied Economics Research Centre (AERC), University of Karachi, P. O. Box 8403, Karachi 75270, Sindh, Pakistan
Syed Faizan Iftikhar: Applied Economics Research Centre (AERC), University of Karachi, P. O. Box 8403, Karachi 75270, Sindh, Pakistan

International Journal of Financial Engineering (IJFE), 2019, vol. 06, issue 02, 1-20

Abstract: The objective of this study is to investigate the impact of bank capital on monetary policy transmission mechanism during the period from 2010 to 2016 for 20 Emerging Market Economics (EMEs) by using the two-step system generalized method of moments (GMM). The coefficient of excess capital in low-asset countries is found to be negative which reveals the importance of excess capital for the effectiveness of monetary transmission. However, the study could not find the significance of excess capital for high-asset countries as they may afford the risky way to generate their income by increasing the loan supply.

Keywords: Capital buffer; monetary policy; central banks and their policies (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1142/S2424786319500191

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