(AERC, 2021-04-19) Chiumia, Austin; Palamuleni, Arnold
This study investigated the interest rate pass-through and its implications for monetary
policy effectiveness in Malawi. Using the cost-of-funds approach and monthly data
from 2009 to 2015, an autoregressive distributed lag model was estimated. Results
suggest that the structure of the banking industry (banking environment) matters.
Also, market power is important in understanding the resulting variation in the savings
and lending rates across banks in the market as well as the transmission of monetary
policy impulses. Overall, our findings suggest that short-term rates as operating target
are consistent with inflation targeting as a monetary policy objective.