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Interest Rate and Credit Channels of Monetary Transmission Mechanism: A Study of the Malaysian Experience (January 1996-June 2012)

Noor Maimun, Abdul Wahab (2013) Interest Rate and Credit Channels of Monetary Transmission Mechanism: A Study of the Malaysian Experience (January 1996-June 2012). Masters thesis, Universiti Utara Malaysia.

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Abstract

Monetary transmission mechanism as define by Taylor (1995) as a process through which monetary policy decisions are transmitted into changes in income and inflation. Monetary transmission mechanism works through various channels namely interest rate channel, credit channel, exchange rate channel, asset price channel and expectation channel. A review of the related literature supported that the credit channel to be a more significant monetary transmission channel than the interest rate channel in foreign countries like China, Korea and United States. This project paper investigates the interest rate and credit channels in the monetary transmission mechanism in Malaysia over the period of January 1996 to June 2012 by employing a Vector autoregressive (VAR) approach. It planned to meet two major objectives. Firstly, is to examine the significance influence of overnight policy rate (OPR) and total loans by commercial banks (TL) as channels of monetary transmission mechanism in Malaysia. Secondly, to identify the direction of causality between the variables used in this study which are overnight policy rate, total loans by commercial banks, lending rate and consumer price index. The results show that, overnight policy rate, lending rate, total loans by commercial banks and consumer price index are cointegrated. This study finds conclusive evidence that both channels are important in the monetary transmission mechanism in Malaysia.

Item Type: Thesis (Masters)
Uncontrolled Keywords: Monetary Transmission Mechanism, Interest Rate Channel, Credit Channel and Vector Autoregressive (VAR) Approach
Subjects: H Social Sciences > HJ Public Finance
Divisions: Othman Yeop Abdullah Graduate School of Business
Depositing User: Mr. Badrulsaman Hamid
Date Deposited: 25 Sep 2013 03:36
Last Modified: 18 Apr 2016 00:56
URI: http://etd.uum.edu.my/id/eprint/3580

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