Impact of Interbank Liquidity on Monetary Transmission Mechanism: A Case Study of Pakistan

Muhammad Omer, Jakob de Haan and Bert Scholtens

No 70, SBP Working Paper Series from State Bank of Pakistan, Research Department

Abstract: We investigate the transmission mechanism of policy-induced changes in the discount rate and required reserves in Pakistan. Our results suggest that the pass through to the lending rate is complete for the discount rate but incomplete for required reserves. However, only shocks to required reserves have an effect on the deposit rate and the exchange rate in the long run. The observation that the discount rate is not a very effective monetary policy tool is attributed to excess liquidity present in the interbank market of Pakistan. Finally, our findings suggest a structural shift in the interbank money market in Pakistan.

Keywords: Monetary transmission mechanism; Pakistan; excess liquidity; VAR; ARDL (search for similar items in EconPapers)
JEL-codes: E51 E52 E58 E61 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2014-05
New Economics Papers: this item is included in nep-mac and nep-mon
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Related works:
Working Paper: Impact of Interbank Liquidity on Monetary Transmission Mechanism: A Case Study of Pakistan (2015)
Working Paper: Impact of Interbank Liquidity on Monetary Transmission Mechanism: A Case Study of Pakistan (2014)
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