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Monetary transmission during low interest rate environment in a dual banking system: evidence from Malaysia

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  • Asbeig
  • Kassim

Abstract

This study aims to determine the role of bank loans in the transmission of monetary policy in an environment of low interest rate in the context of a dual banking system in Malaysia. By adopting a balanced panel data approach applied on data covering the period from 2000 to 2011, the study finds that changes in the monetary policy have no significant impact on the level of financing extended by the Islamic and conventional banks. However, bank-specific factors, namely size and liquidity play an important role in influencing the lending behaviour of both the Islamic and conventional banks, whereas capitalization is relevant only for the Islamic banks. Findings of the study provide important input for effective monetary policy implementation in countries with increasing presence of the Islamic banks.

Suggested Citation

  • Asbeig & Kassim, 2015. "Monetary transmission during low interest rate environment in a dual banking system: evidence from Malaysia," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 8(3), pages 275-285, November.
    • Handle: RePEc:taf:macfem:v:8:y:2015:i:3:p:275-285
    DOI: 10.1080/17520843.2015.1060248
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    1. Arellano, Manuel, 1993. "On the testing of correlated effects with panel data," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 87-97, September.
    2. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
    3. de Mello, Luiz & Pisu, Mauro, 2010. "The bank lending channel of monetary transmission in Brazil: A VECM approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(1), pages 50-60, February.
    4. Kishan, Ruby P & Opiela, Timothy P, 2000. "Bank Size, Bank Capital, and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 121-141, February.
    5. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
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    Cited by:

    1. Fazelina Sahul Hamid & Norhanishah Mohd Yunus, 2020. "Bank-Lending Channel of Monetary Policy Transmission: Evidence from ASEAN," Global Business Review, International Management Institute, vol. 21(4), pages 892-905, August.
    2. Saeed, Shifa Mohamed & Abdeljawad, Islam & Hassan, M. Kabir & Rashid, Mamunur, 2023. "Dependency of Islamic bank rates on conventional rates in a dual banking system: A trade-off between religious and economic fundamentals," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 1003-1021.
    3. Hassan, M. Kabir & Aliyu, Sirajo, 2018. "A contemporary survey of islamic banking literature," Journal of Financial Stability, Elsevier, vol. 34(C), pages 12-43.
    4. Sirajo Aliyu & Rosylin Mohd Yusof, 2016. "Profitability and Cost Efficiency of Islamic Banks: A Panel Analysis of Some Selected Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1736-1743.

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