The Transmission of Monetary Policy through Conventional and Islamic Banks

S. Zaheer, S. Ongena, S.J.G. van Wijnbergen

Research output: Working paperDiscussion paperOther research output

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Abstract

We investigate the differences in banks’ responses to monetary policy shocks across bank size, liquidity, and type, i.e., conventional versus Islamic, in Pakistan between 2002:II to 2010:I. We find that following a monetary contraction, small banks with liquid balance sheets cut their lending less than other small banks. In contrast large banks maintain their lending irrespective of their liquidity positions. Islamic banks, though similar in size to small banks, respond to monetary policy shocks as large banks. Hence ceteris paribus the credit channel of monetary policy may weaken when Islamic banking grows in relative importance.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Volume2011-078
Publication statusPublished - 2011

Publication series

NameCentER Discussion Paper
Volume2011-078

Fingerprint

Islamic financial institutions
Monetary policy
Liquidity
Lending
Monetary policy shocks
Relative importance
Contraction
Islamic banking
Credit channel
Balance sheet
Bank size
Ceteris paribus
Pakistan

Keywords

  • Monetary policy
  • Islamic Banking
  • Pakistan

Cite this

Zaheer, S., Ongena, S., & van Wijnbergen, S. J. G. (2011). The Transmission of Monetary Policy through Conventional and Islamic Banks. (CentER Discussion Paper; Vol. 2011-078). Tilburg: Finance.
Zaheer, S. ; Ongena, S. ; van Wijnbergen, S.J.G. / The Transmission of Monetary Policy through Conventional and Islamic Banks. Tilburg : Finance, 2011. (CentER Discussion Paper).
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abstract = "We investigate the differences in banks’ responses to monetary policy shocks across bank size, liquidity, and type, i.e., conventional versus Islamic, in Pakistan between 2002:II to 2010:I. We find that following a monetary contraction, small banks with liquid balance sheets cut their lending less than other small banks. In contrast large banks maintain their lending irrespective of their liquidity positions. Islamic banks, though similar in size to small banks, respond to monetary policy shocks as large banks. Hence ceteris paribus the credit channel of monetary policy may weaken when Islamic banking grows in relative importance.",
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Zaheer, S, Ongena, S & van Wijnbergen, SJG 2011 'The Transmission of Monetary Policy through Conventional and Islamic Banks' CentER Discussion Paper, vol. 2011-078, Finance, Tilburg.

The Transmission of Monetary Policy through Conventional and Islamic Banks. / Zaheer, S.; Ongena, S.; van Wijnbergen, S.J.G.

Tilburg : Finance, 2011. (CentER Discussion Paper; Vol. 2011-078).

Research output: Working paperDiscussion paperOther research output

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AB - We investigate the differences in banks’ responses to monetary policy shocks across bank size, liquidity, and type, i.e., conventional versus Islamic, in Pakistan between 2002:II to 2010:I. We find that following a monetary contraction, small banks with liquid balance sheets cut their lending less than other small banks. In contrast large banks maintain their lending irrespective of their liquidity positions. Islamic banks, though similar in size to small banks, respond to monetary policy shocks as large banks. Hence ceteris paribus the credit channel of monetary policy may weaken when Islamic banking grows in relative importance.

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Zaheer S, Ongena S, van Wijnbergen SJG. The Transmission of Monetary Policy through Conventional and Islamic Banks. Tilburg: Finance. 2011. (CentER Discussion Paper).