{
  "title": "Testing a Disequilibrium Model of Lending Rate Determination: The Case of Malaysia",
  "publication": "IMF Working Papers, September 1, 1991",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/testing-a-disequilibrium-model-of-lending-rate-determination-the-case-of-malaysia-963",
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  "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.",
  "sections": [
    {
      "heading": "Study overview",
      "content": "- Examines whether lending rates cleared the market for loans in Malaysia after interest rate liberalization.\n- Based on a theoretical model integrating adverse selection and marginal cost pricing via a quadratic loss function in the error correction format.\n- Uses the cointegration methodology to test long-run relationships and short-run dynamics."
    },
    {
      "heading": "Methodology",
      "content": "- Theoretical framework: adverse selection + marginal cost pricing combined through a quadratic loss function in an error correction format.\n- Econometric approach: cointegration methodology and error-correction modeling to separate long-run equilibrium relationships from short-run adjustments."
    },
    {
      "heading": "Key findings",
      "content": "- Long-run tests\n  - Support the model proposed in the paper.\n  - Reject part of the financial liberalization model.\n- Short-run results\n  - There is a large lag before lending rates respond to exogenous shocks.\n  - Conclusion: lending rates do not fully clear the market for loans in Malaysia in the short run."
    },
    {
      "heading": "Policy implications / Interpretation",
      "content": "- Interest rate liberalization alone may not ensure that lending rates adjust quickly to clear loan markets.\n- Presence of adverse selection and marginal cost pricing considerations can slow the pass-through of shocks to lending rates, implying potential persistence of credit rationing or market disequilibrium after liberalization.\n- Monitoring short-run frictions and addressing information asymmetries may be important to improve the responsiveness of lending rates."
    },
    {
      "heading": "Key publication facts",
      "content": "- Author: Barry Scholnick\n- Publication date: September 1, 1991\n- Series: IMF Working Papers, Working Paper No. 1991/084\n- Volume: 1991; Issue: 084; Pages: 43\n- DOI: https://doi.org/10.5089/9781451954364.001\n- ISBN: 9781451954364\n- ISSN: 1018-5941\n\nSource: Testing a Disequilibrium Model of Lending Rate Determination: The Case of Malaysia, Barry Scholnick, September 1, 1991. DOI: https://doi.org/10.5089/9781451954364.001\n\n---\n\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/testing-a-disequilibrium-model-of-lending-rate-determination-the-case-of-malaysia-963"
    }
  ],
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    "Authors: Barry Scholnick",
    "Published: September 1, 1991",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451954364.001",
    "Examines whether lending rates cleared the market for loans in Malaysia after interest rate liberalization.",
    "Based on a theoretical model integrating adverse selection and marginal cost pricing via a quadratic loss function in the error correction format.",
    "Uses the cointegration methodology to test long-run relationships and short-run dynamics.",
    "Theoretical framework: adverse selection + marginal cost pricing combined through a quadratic loss function in an error correction format.",
    "Econometric approach: cointegration methodology and error-correction modeling to separate long-run equilibrium relationships from short-run adjustments.",
    "Long-run tests",
    "Short-run results",
    "Interest rate liberalization alone may not ensure that lending rates adjust quickly to clear loan markets.",
    "Presence of adverse selection and marginal cost pricing considerations can slow the pass-through of shocks to lending rates, implying potential persistence of credit rationing or market disequilibrium after liberalization.",
    "Monitoring short-run frictions and addressing information asymmetries may be important to improve the responsiveness of lending rates.",
    "Author: Barry Scholnick",
    "Publication date: September 1, 1991",
    "Series: IMF Working Papers, Working Paper No. 1991/084",
    "Volume: 1991; Issue: 084; Pages: 43",
    "DOI: https://doi.org/10.5089/9781451954364.001",
    "ISBN: 9781451954364",
    "ISSN: 1018-5941"
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