The Bank Lending Channel in a Dual Banking System: Evidence from Malaysia

33 Pages Posted: 15 Apr 2016

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute)

Abdurrahman Nazif Catik

Ege University Department of Economics

Mohamad Helmi

Brunel University London

Faek Menla Ali

University of Sussex -University of Sussex Business School

Mohammad Tajik

Brunel University London - Economics and Finance

Date Written: March 17, 2016

Abstract

This paper examines the bank lending channel of monetary transmission in Malaysia, a country with a dual banking system including both Islamic and conventional banks, over the period 1994:01-2015:06. A two-regime threshold vector autoregression (TVAR) model is estimated to take into account possible nonlinearities in the relationship between bank lending and monetary policy under different economic conditions. The results indicate that Islamic credit is less responsive than conventional credit to interest rate shocks in both the high and low growth regimes. By contrast, the relative importance of Islamic credit shocks in driving output growth is much greater in the low growth regime, their effects being positive. These findings can be interpreted in terms of the distinctive features of Islamic banks.

Keywords: bank lending channel, Malaysia, monetary transmission, threshold VAR

JEL Classification: C320, E310, E420, E580

Suggested Citation

Caporale, Guglielmo Maria and Catik, Abdurrahman Nazif and Helmi, Mohamad and Menla Ali, Faek and Tajik, Mohammad, The Bank Lending Channel in a Dual Banking System: Evidence from Malaysia (March 17, 2016). CESifo Working Paper Series No. 5807. Available at SSRN: https://ssrn.com/abstract=2764798

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

Kingston Lane
Marie Jahoda Building
Uxbridge, Middlesex UB8 3PH
United Kingdom
+44 1895 266713 (Phone)
+44 1895 269770 (Fax)

HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Abdurrahman Nazif Catik

Ege University Department of Economics ( email )

Bornova, Izmir 35100
Turkey

HOME PAGE: http://akademik.ege.edu.tr/?q=en/bilgiler&id=3270

Mohamad Helmi

Brunel University London ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

Faek Menla Ali

University of Sussex -University of Sussex Business School ( email )

Falmer
Brighton, East Sussex BN1 9SL
United Kingdom

Mohammad Tajik

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom

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