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

Author

Listed:
  • Patrick Mumbi Chileshe

    (Bank of Zambia,)

  • Olusegun Ayodele Akanbi

    (University of South Africa)

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.

Suggested Citation

  • Patrick Mumbi Chileshe & Olusegun Ayodele Akanbi, 2016. "The effect of Bank competition on the effectiveness of the Interest Rate Channel of Monetary Policy Transmission," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 5(3), pages 10-32, September.
    • Handle: RePEc:sek:jijoes:v:5:y:2016:i:3:p:10-32
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    References listed on IDEAS

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    Cited by:

    1. Gregor, Jiří & Melecký, Martin, 2018. "The pass-through of monetary policy rate to lending rates: The role of macro-financial factors," Economic Modelling, Elsevier, vol. 73(C), pages 71-88.
    2. Thi Hang Ngo & Akira Ariyoshi & Thi Xuan Anh Tran, 2021. "Interest rate pass‐through and exogenous factors: Evidence from Vietnam," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 1299-1317, January.
    3. Chileshe, Patrick Mumbi, 2017. "Banking structure and the bank lending channel of monetary policy transmission: evidence from panel data methods," MPRA Paper 82757, University Library of Munich, Germany.

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    More about this item

    Keywords

    HHI; Boone Index; Lerner Index; Interest rate pass-through; monetary policy; Panel Data;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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