Asymmetric Effects of Monetary Policy on Commercial Banks Deposits in Iraq

Miho, Aras Abdulkareem; Karimi, Zahra; Fazlzadeh, AliReza; Aghajani, Habib

doi:10.52547/jep.3.2.159

Asymmetric Effects of Monetary Policy on Commercial Banks Deposits in Iraq

Document Type : Original Article

Authors

¹ This article is extracted from the doctoral thesis of the Aras A. Miho Ph.D. Candidate, Faculty of Economics & Management, University of Tabriz, Tabriz, Iran

² Department of Economics, Faculty of economics & Management, University of Tabriz, Tabriz, Iran.

³ Associate Professor, Faculty of Economics & Management, University of Tabriz, Tabriz, Iran

⁴ Assistant Professor, Faculty of Economics & Management, University of Tabriz, Tabriz, Iran

10.52547/jep.3.2.159

Abstract

This study propose and test a new channel for the transmission of monetary policy, when monetary policy changes banks respond to the interest they charge on deposits and affects directly on the size of banks deposits and, thus, affects lending power of commercial banks. Given this issue in mind, this study examines the asymmetric effects of monetary policies on commercial banks deposits in Iraq. The study applied Unit root test, Nonlinear autoregressive distributed lag (NARDL) approach, Error correction model (ECM), Bound test and Wald test using monthly data spanning from Jan 2005 to Dec 2019. Policy Interest Rate (IR), Cash Reserve Requirement (RR), and Broad Money Supply (M2) were used to proxy the monetary policies. Bank Deposit (BD), were used as the proxy of the Iraqi commercial banks deposit. The findings of NARDL show a non-linear relationship between monetary policies and Banks deposit. Furthermore, the results of Bound test and ECM confirmed the existence of the long run and short run relation between monetary policies and commercial banks deposit in Iraq. Finally, the result of Wald test indicates that policy interest rate and reserve requirement has asymmetric effect on banks deposit, while money supply has symmetric effect. Hence, it is suggested that policy makers in Iraq should consider the positive and negative shocks of monetary policy as commercial banks respond asymmetrically to the monetary policy Instruments.

Keywords

20.1001.1.27171485.2022.3.2.7.6

References

Abdi, D., Moradi, M., Anvie, L. (2020). The Study of the Asymmetric Effects of Banking Sector Development on the Profitability of the Melli Bank Based on the Comprehensive Banking Model with the Non-linear Model of Markov Regime Change (MS). Quarterly Journal of Applied Theories of Economics, 6(4): 191-216.

Acharya, V. V., & Mora, N. (2015). A crisis of banks as liquidity providers. The journal of Finance, 70(1): 1-43.

Amaliawiati, L., & Winarso, E. (2013). The influence of monetary policy (BI rate) on Profitability of commercial banks in Indonesia, 10th Ubaya International Annual Symposium on Management.

Ben-David, I., Palvia, A., & Spatt, C. (2015). Banks’ internal capital markets and deposit rates (No. w21526).

Bernanke, B., & Blinder, A. S. (1992). The federal funds rate and the transmission of monetary policy. American Economic Review, 82(4): 901-921. ‏

Brissimis, S. N., & Delis, M. D. (2009). Identification of a loan supply function: A cross-country test for the existence of a bank lending channel. Journal of International Financial Markets, Institutions and Money, 19(2):, 321-335. ‏

Chang, J. C., Tsong, C. C., & Wu, C. T. (2010). The Asymmetric Effects of Monetary Policy and Bank Credits in Taiwan Banking Industry-A Dynamic Panel Data Analysis. Journal of Economics and Management, 6(2):, 229-246.

Drechsler, I, A Savov and P Schnabl (2017), “The Deposits Channel of Monetary Policy,” Quarterly Journal of Economics 132: 1819-1876.

Driscoll, J. C., & Judson, R. (2013). Sticky deposit rates. Available at SSRN 2241531.

Ekpung, G. E., Udude, C. C., & Uwalaka, H. I. (2015). The impact of monetary policy on the banking sector in Nigeria. International Journal of Economics, commerce and management, 3(5): 1015-1031.

Gilje, E. P., Loutskina, E., & Strahan, P. E. (2016). Exporting liquidity: Branch banking and financial integration. The Journal of Finance, 71(3), 1159-1184.

Hannan, T. and Berger, A. (1991) The Rigidity of Prices: Evidence from Banking Industry. American Economic Review, 81: 938-945.

Hanson, S. G., Shleifer, A., Stein, J. C., & Vishny, R. W. (2015). Banks as patient fixed-income investors. Journal of Financial Economics, 117(3): 449-469.

Hülsewig, O., Mayer, E., & Wollmershäuser, T. (2009). Bank behavior, incomplete interest rate pass-through, and the cost channel of monetary policy transmission. Economic Modelling, 26(6): 1310-1327. ‏

Matvos, G., Hortacsu, A., & Egan, M. (2015). Deposit Competition and Financial Fragility: Evidence from the US Banking Sector. In 2015 Meeting Papers (No. 1363). Society for Economic Dynamics.

Modigliani, F. (1986). Life cycle, individual thrift, and the wealth of nations. Science, 234(4777): 704-712.

Neumark, D., & Sharpe, S. A. (1992). Market structure and the nature of price rigidity: evidence from the market for consumer deposits. The Quarterly Journal of Economics, 107(2):, 657-680.

Shin, Y., Yu, B. & M. Greenwood-Nimmo (2011), "Modeling Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Framework", Mimeo

Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In Festschrift in honor of Peter Schmidt (pp. 281-314). Springer, New York, NY.

Solomon, A. G. (2012). Impact of Euro-Area accession on fiscal and budgetary policy in Romania. Procedia-Social and Behavioral Sciences, 62: 733-738.

Udoh, E. A., Dauda, M., Ajayi, K. J., & Ikpechukwu, N. C. (2021). Monetary policy transmission in Nigeria: Does the credit channel work? The Journal of Developing Areas, 55(1). ‏

Yong Li & Mancang Wang, 2012. "Capital regulation, monetary policy and asymmetric effects of commercial banks' efficiency," China Finance Review International, Emerald Group Publishing, 2(1):, 5-26.

Zangane E, zamanian G, shahiki tash M & cheshomi A. (2022) Analysis of the Asymmetric Impact of Macroeconomic Factors on credit to the Private Sector During the Boom and Credit Crisis: 411-451.