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Low interest rate regime and the transmission of monetary policy through the lending channel in Malaysia: evidence from bank-level data

Asbeig, Hussam I. and Kassim, Salina (2013) Low interest rate regime and the transmission of monetary policy through the lending channel in Malaysia: evidence from bank-level data. In: 2nd Applied International Business Conference 2013 (AIBC 2013), 7th-8th Dec. 2013, Labuan School of International Business and Finance, Universiti Malaysia Sabah.

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Abstract

Monetary policy in Malaysia has been designed to be accommodative and supportive of economic growth with balancing the risk of inflation. As the cost of borrowing remains low, the transmission of monetary policy through the traditional interest rate channel might be diminished. Moreover, the influential presence of the Islamic banks has further compounded the transmission process of monetary policy via interest rate channel. This study investigates the impact of monetary policy actions on the supply of loan/financing based on bank specific characteristics namely, size, liquidity and capitalization. The study adopts a multiplicative model based on panel data approach. We utilise balanced annual panel data that covers the period from 2000 to 2011. The study finds that bank specific factors, specifically, size and liquidity play an important role for the lending behaviour of the Islamic and conventional banks, whereas capitalization is significant only for the Islamic banks. Additionally, the study finds that the annual changes in the monetary policy have no significant impact on the level of financings of both the Islamic and conventional banks in Malaysia. We also find that monetary policy has no distributional effect on bank financings across capitalization, liquidity, size, and type during the study period, which does not help identify the financing/lending channel in Malaysia.

Item Type: Conference or Workshop Item (Full Paper)
Additional Information: 4600/42726 (ISBN: 9789670521268)
Uncontrolled Keywords: Islamic banks, monetary policy, transmission mechanism
Subjects: H Social Sciences > HG Finance > HG1501 Banking
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button): Kulliyyah of Economics and Management Sciences > Department of Economics
Depositing User: Dr Salina Kassim
Date Deposited: 20 Apr 2015 15:52
Last Modified: 20 Apr 2015 15:52
URI: http://irep.iium.edu.my/id/eprint/42726

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