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Transmission Mechanism of Monetary Policy in Pakistan

Author

Listed:
  • Noor Ahmed

    (State Bank of Pakistan)

  • Hastam Shah

    (State Bank of Pakistan)

  • Asif Idrees Agha

    (State Bank of Pakistan)

  • Yasir Ali Mubarik

    (State Bank of Pakistan)

Abstract

This paper uses vector autoregressions to examine the monetary transmission mechanism in Pakistan. The results point to a transmission mechanism in which banks play an important role. A monetary tightening leads to a fall in domestic demand, primarily investment demand financed by bank lending, which translates into a gradual reduction in price pressures that eventually reduces the overall price level with a significant lag. We also find an active asset price channel. The exchange rate channel is less significant by comparison.

Suggested Citation

  • Noor Ahmed & Hastam Shah & Asif Idrees Agha & Yasir Ali Mubarik, 2005. "Transmission Mechanism of Monetary Policy in Pakistan," SBP Working Paper Series 09, State Bank of Pakistan, Research Department.
    • Handle: RePEc:sbp:wpaper:09
    as

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    File URL: http://www.sbp.org.pk/repec/sbp/wpaper/wp09.pdf
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    References listed on IDEAS

    as
    1. Mr. Ramana Ramaswamy & Mr. Torsten M Sloek, 1997. "The Real Effects of Monetary Policy in the European Union: What Are the Differences?," IMF Working Papers 1997/160, International Monetary Fund.
    2. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148, Elsevier.
    3. By James Morsink & Tamim Bayoumi, 2001. "A Peek Inside the Black Box: The Monetary Transmission Mechanism in Japan," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 1-2.
    4. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    5. John B. Taylor, 1995. "The Monetary Transmission Mechanism: An Empirical Framework," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 11-26, Fall.
    6. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
    7. Disyatat, Piti & Vongsinsirikul, Pinnarat, 2003. "Monetary policy and the transmission mechanism in Thailand," Journal of Asian Economics, Elsevier, vol. 14(3), pages 389-418, June.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Monetary policy transmission; interest rate; vector auto-regression.;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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