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Title:	Monetary policy effectiveness in Pakistan: an empirical investigation on monetary policy channels, trade balance and interest rate pass-through
Authors:	Abdul Rahman Nizamani (P72144)
Supervisor:	Zulkefly Abdul Karim, Dr.
Keywords:	Monetary policy Pakistan Stabilising tool Universiti Kebangsaan Malaysia -- Dissertations
Issue Date:	20-Nov-2017
Description:	This thesis comprises three empirical studies analysing the effectiveness of monetary policy in the small open economy of Pakistan. Using both macro and bank-level data, the central objective of this thesis is to explore the strength of monetary policy as a stabilising tool. The first study (chapter 2) examined the effectiveness of monetary policy on the inflation rate and output by employing the open economy Structural Vector Autoregressive (SVAR) models. It explored the relative strength of each transmission channels (i.e. interest rate, credit, exchange rate and asset price channels) by employing the shutdown methodology in SVAR analysis. The results revealed the limited effectiveness of monetary policy in Pakistan in stabilising the inflation rate and output. The monetary policy on interest rate channel was found to have an effective impact on inflation rate in the short-run, while the credit channel affected output in the long-run. Findings from this study suggested that the monetary authorities should rely on the interest rate channel to control inflation and the credit channel should be utilised to enhance economic output. The second study (chapter 3) examined the effects of monetary policy and exchange rates on the trade balance of Pakistan. Both the monetary policy and exchange rates are analysed using the Structural Vector Error Correction Models (SVECM) approach. The SVECM approach allows both the short-run contemporaneous and long-run theoretical restrictions on the model. The main finding from this study reveals that tight monetary policy effects cause the trade balance to deteriorate. The deterioration in trade balance confirms that the expenditure switching effects of monetary policy are stronger than the income effects on the trade balance. The effects of depreciations shocks in exchange rates did not improve the trade balance. This study also failed to trace the J-curve effects on the trade balance data of Pakistan. This study concludes that the prolong implementation of contractionary monetary policy will result further deterioration in the trade balance. The final study (chapter 4) highlighted the role of commercial banks�� characteristics to determine the nature of interest rate pass-through in Pakistan. The bank-level characteristics include the market size of the bank, the level of market capitalisation, liquidity, profitability and competition. To allow the bank-level heterogeneity in the estimation process, this study uses the dynamic heterogeneous panel technique that is the Mean Group (MG) and Pooled Mean Group (PMG) estimation. The results have significantly found an incomplete pass-through from monetary policy rate to commercial banks�� lending rates. This study found that large banks with lower capitalisation and smaller liquidity pass on the policy rate to their lending rates more quickly. However, the monetary policy pass-through may further be improved if the capital adequacy ratio for commercial banks can be reduced.,Certification of Master's/Doctoral Thesis" is not available
Pages:	191
Publisher:	UKM, Bangi
Appears in Collections:	Faculty of Economy and Management / Fakulti Ekonomi dan Pengurusan

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