The Role of Bank Loans and Deposits in the Monetary Transmission Mechanism In Malaysia

This study attempts to determine the importance of the banking sector in the monetary transmission process in a developing economy.The study analyzes the Malaysian data focusing on three sample periods: the entire sample period (1989:01 2006:12); the pre-crisis period (1989:01-1996:12); and the post...

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Main Authors: Kassim, Salina, A. Majid, M. Shabri
Format: Article
Language:English
Published: Universiti Utara Malaysia 2009
Subjects:
Online Access:https://repo.uum.edu.my/id/eprint/25069/1/IJBF%206%202%202009%2037%2059.pdf
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author Kassim, Salina
A. Majid, M. Shabri
author_facet Kassim, Salina
A. Majid, M. Shabri
author_sort Kassim, Salina
collection UUM
description This study attempts to determine the importance of the banking sector in the monetary transmission process in a developing economy.The study analyzes the Malaysian data focusing on three sample periods: the entire sample period (1989:01 2006:12); the pre-crisis period (1989:01-1996:12); and the post-crisis period (1999:01-2006:12). To achieve this objective, the study relies on two tests: first, the auto-regressive distributed lag (ARDL) model for the long-run relationship among the variables and second, the impulse response functions and variance decomposition analysis for the short-run relationship among the variables. The finding shows that both bank deposits and loans play crucial roles in the monetary transmission process in the economy, suggesting evidence for the money endogeneity theory of post-Keynesian economists. In particular, bank deposits and loans are shown to provide an important link from monetary policy to output. This underscores the importance of ensuring the soundness of banking system as a pre-requisite to economic stability in the absence of such market based tools as market-based actions on exchange rate or interest rates as monetary stabilisation tools.
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spelling uum-250692018-10-29T03:18:11Z https://repo.uum.edu.my/id/eprint/25069/ The Role of Bank Loans and Deposits in the Monetary Transmission Mechanism In Malaysia Kassim, Salina A. Majid, M. Shabri HG Finance This study attempts to determine the importance of the banking sector in the monetary transmission process in a developing economy.The study analyzes the Malaysian data focusing on three sample periods: the entire sample period (1989:01 2006:12); the pre-crisis period (1989:01-1996:12); and the post-crisis period (1999:01-2006:12). To achieve this objective, the study relies on two tests: first, the auto-regressive distributed lag (ARDL) model for the long-run relationship among the variables and second, the impulse response functions and variance decomposition analysis for the short-run relationship among the variables. The finding shows that both bank deposits and loans play crucial roles in the monetary transmission process in the economy, suggesting evidence for the money endogeneity theory of post-Keynesian economists. In particular, bank deposits and loans are shown to provide an important link from monetary policy to output. This underscores the importance of ensuring the soundness of banking system as a pre-requisite to economic stability in the absence of such market based tools as market-based actions on exchange rate or interest rates as monetary stabilisation tools. Universiti Utara Malaysia 2009 Article PeerReviewed application/pdf en https://repo.uum.edu.my/id/eprint/25069/1/IJBF%206%202%202009%2037%2059.pdf Kassim, Salina and A. Majid, M. Shabri (2009) The Role of Bank Loans and Deposits in the Monetary Transmission Mechanism In Malaysia. The International Journal of Banking and Finance, 6 (2). pp. 37-59. ISSN 1617-722 http://ijbf.uum.edu.my/index.php/previous-issues/138-the-international-journal-of-banking-and-finance-ijbf-vol-6-no-2-february-march-2009
spellingShingle HG Finance
Kassim, Salina
A. Majid, M. Shabri
The Role of Bank Loans and Deposits in the Monetary Transmission Mechanism In Malaysia
title The Role of Bank Loans and Deposits in the Monetary Transmission Mechanism In Malaysia
title_full The Role of Bank Loans and Deposits in the Monetary Transmission Mechanism In Malaysia
title_fullStr The Role of Bank Loans and Deposits in the Monetary Transmission Mechanism In Malaysia
title_full_unstemmed The Role of Bank Loans and Deposits in the Monetary Transmission Mechanism In Malaysia
title_short The Role of Bank Loans and Deposits in the Monetary Transmission Mechanism In Malaysia
title_sort role of bank loans and deposits in the monetary transmission mechanism in malaysia
topic HG Finance
url https://repo.uum.edu.my/id/eprint/25069/1/IJBF%206%202%202009%2037%2059.pdf
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