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Interest Rate Pass-Through in Pakistan: Evidence from the Asymmetric Co-integration Approach

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Title: Interest Rate Pass-Through in Pakistan: Evidence from the Asymmetric Co-integration Approach

Authors: Farrukh Mahmood

Journal: NUST Journal of Social Sciences and Humanities (NJSSH)

HEC Recognition History
Category From To
Y 2024-10-01 2025-12-31
Y 2023-07-01 2024-09-30
Y 2022-07-01 2023-06-30
Y 2021-07-01 2022-06-30
Y 2020-07-01 2021-06-30

Publisher: National University of Sciences & Technology, Rawalpindi/Islamabad (NUST)

Country: Pakistan

Year: 2018

Volume: 4

Issue: 2

Language: en

DOI: 10.51732/njssh.v4i2.32

Keywords: AsymmetryInterest Rate Pass-ThroughThreshold Co-IntegrationRigiditiesJEL Classification: D82E43C22

Categories
Finance (9883) Monetary Policy (316) Banking (1589) Econometrics (4472) Economics (27414)

Abstract

This study examines the asymmetry of interest rate pass-through between wholesale (KIBOR) and retail interest rates (Deposit and Lending rate) for Pakistan, by using the asymmetric threshold co-integration proposed by Enders & Sikles (2001) and EC-EGARCH-M model proposed by Wang & Lee (2009). Empirical results of threshold co-integration test confirm that asymmetric relation exists between wholesale and retail interest rates, and hence the rate of pass-through is incomplete. Furthermore, in the long-run, retail interest rates are rigid towards the downwards adjustment, and hence there is an upward adjustment in error correction mechanism.

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