Paper Title
Interest Rate Pass-through and Relevance of Cost-Channel in Pakistan: A DSGE Perspective

Abstract
In this paper, we investigate the interest rate pass-through in the calibrated New-Keynesian model for Pakistan. It also investigates the relevance of cost-channel in the presence of incomplete interest rate pass-through. Banks extend their loans in Calvo environment, so the loan rate adjustment is sluggish. We found that interest rate pass-through from policy rate to retail rate is incomplete for Pakistan as well as cost-channel is relevant for Pakistan economy using calibration. Our main conclusion is that financial frictions in the credit markets lead to monetary policy shocks in the economy and leads to incomplete interest rate pass-through. Secondly, cost-channel operates in Pakistan, monetary policy shock tends to increase price level in the economy, but banks shelter firms from interest rate alterations. Due to incomplete interest rate pass-through, effects of cost-channel are not transmitted completely. JEL Classification - E44, E52, E58 Keywords - Interest Rate Pass-through, Cost Channel, Monetary Policy Shock, Calibration, DSGE, Pakistan Economy.