Bank Lending Channel for Monetary Policy Transmission in Malaysia: An ARDL Approach

14 Pages Posted: 24 Nov 2008

See all articles by Kim-Leng Goh

Kim-Leng Goh

University of Malaya

Chin Sieng Chong

Independent

Sook-Lu Yong

University of Malaya (UM)

Date Written: November 23, 2008

Abstract

The relevance of bank lending channel for the transmission process of monetary policy in Malaysia is investigated using the autoregressive-distributed lag (ARDL) model. The newly developed bounds test (Pesaran, et al. 2001) is employed to determine the specification of this model. Deposits tend to fall following contractionary monetary policy shocks, but banks are able to cushion their loan customers from the reduction in deposits through adjustments in liquid financial instruments. As such, these monetary shocks did not depress growth in loans. Although a shift is witnessed in the country's interest rate regime as a policy response to the recent East Asian currency crisis, evidence was not found to support the effectiveness of the bank lending channel for the transmission of monetary policy.

Keywords: Bank deposits, Bank loans, Bounds test, Generalised Impulses, Interest rates

JEL Classification: C22, E52, G21

Suggested Citation

Goh, Kim-Leng and Chong, Chin Sieng and Yong, Sook-Lu, Bank Lending Channel for Monetary Policy Transmission in Malaysia: An ARDL Approach (November 23, 2008). Applied Econometrics and International Development, Vol. 7, No. 2, 2007, Available at SSRN: https://ssrn.com/abstract=1305895

Kim-Leng Goh (Contact Author)

University of Malaya ( email )

University of Malaya
Kuala Lumpur, Wilayah Persekutuan 50603
Malaysia
603-79673608 (Phone)

HOME PAGE: http://umexpert.um.edu.my/papar_cv.php?id=AAAJxnAAQAAAF91AAq

Chin Sieng Chong

Independent ( email )

No Address Available

Sook-Lu Yong

University of Malaya (UM)

Kuala Lumpur, Wilayah Persekutuan 50603
University of Malaya (UM)
Kuala Lumpur, Wilayah Persekutuan 50603
Malaysia