Testing a Disequilibrium Model of Lending Rate Determination: The Case of Malaysia
Summary:
This study examines whether lending rates cleared the market for loans in Malaysia after interest rate liberalization. It is based on a theoretical model in which adverse selection and marginal cost pricing are brought together by the use of a quadratic loss function in the error correction format. This allows for the use of the cointegration methodology. Long-run tests support the model proposed in the paper, while rejecting part of the financial liberalization model. From the short-run results it is concluded that there is a large lag before lending rates respond to exogenous shocks, thus confirming that they do not fully clear the market for loans.
Series:
Working Paper No. 1991/084
Subject:
Banking Commercial banks Credit Deposit rates Financial institutions Financial services Foreign exchange Interbank rates Money Multiple currency practices
English
Publication Date:
September 1, 1991
ISBN/ISSN:
9781451954364/1018-5941
Stock No:
WPIEA0841991
Pages:
43
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