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Investigating the Bank-Lending Channel in South Africa: A VAR Approach

Kirsten Ludi () and Marc Ground ()
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Kirsten Ludi: Department of Economics, University of Pretoria
Marc Ground: Department of Economics, University of Pretoria

No 200604, Working Papers from University of Pretoria, Department of Economics

Abstract: The monetary policy transmission mechanism can broadly be categorised into three separate channels: the interest rate channel, the credit channel and the other asset price channel. This paper seeks to examine the bank-lending channel of the credit channel of monetary policy in South Africa by making use of structural vector auto- regressions (SVAR’s). The pass-through effects of a change in the repurchase (repo) rate on bank deposits and loans and output, are tested using a parsimonious vector error correction model (PVECM). The Johansen (1988) cointegration procedure is used to test for a demand- or supply-driven bank-lending channel. In this way, the validity and effectiveness of the monetary policy regime in South Africa is tested and evaluated.

Keywords: monetary transmission mechanism; bank-lending channel; VAR; VECM; Johansen cointegration test (search for similar items in EconPapers)
JEL-codes: C32 E52 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2006-02
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