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

Authors

  • Salina Kassim International Islamic University of Malaysia, Malaysia
  • M. Shabri A. Majid International Islamic University of Malaysia, Malaysia

DOI:

https://doi.org/10.32890/ijbf2009.6.2.2

Keywords:

Monetary transmission, Bank loans, Bank deposits, Auto-regressive distributed lag model, Impulse response functions, Variance decompositions

Abstract

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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Published

20-08-2009

Issue

Vol. 6 No. 2 (2009): International Journal of Banking and Finance (IJBF) Vol. 6, No.2, 2009

Section

Articles

How to Cite

Kassim, S., & A. Majid, M. S. (2009). The Role of Bank Loans and Deposits in the Monetary Transmission Mechanism In Malaysia. International Journal of Banking and Finance, 6(2), 37-59. https://doi.org/10.32890/ijbf2009.6.2.2

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Harvested 2026-09-07
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Identifiers DOI 10.32890/ijbf2009.6.2.2 OpenAlex W2993696527

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