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1 – 10 of over 4000Amrial, Ahmad Mikail and Tika Arundina
Studies linking monetary policy to inflation and unemployment rates in the context of the Phillips curve are limited to conventional economics. On the other hand, research related…
Abstract
Purpose
Studies linking monetary policy to inflation and unemployment rates in the context of the Phillips curve are limited to conventional economics. On the other hand, research related to application of the dual monetary policy is limited to discussion of monetary policy transmission lines, especially in Islamic banking channels. Therefore, this study aims to determine the monetary policy response in implementation of the dual monetary policy to two important indicators in the macro economy, namely, inflation and unemployment. In addition, the study reveals the relevance of the Phillips curve in Indonesia.
Design/methodology/approach
The method used is vector auto regression vector autoregression (VAR) with monthly data from February 2005 to October 2016 for the first model and semi-annual data from February 2005 to August 2017 for the second model. Analysis of VAR estimation in this research uses the impulse response function (IRF) to analyze the degree of sensitivity or responsiveness to a shock between variables and the variance decomposition (VD) application to analyze how the proportion of each independent variable’s contribution affects the money supply.
Findings
The result shows that monetary policy has responded appropriately to the problems of inflation and unemployment. However, inflation generates a bigger response than unemployment. Bank Indonesia considers the inflation expectations aspect of both conventional and Islamic references. Finally, the concept of the Phillips curve proves to be irrelevant in Indonesia.
Practical implications
The central bank is expected to build a more effective policy for transmission from the monetary sector to the real sector to effectively overcome the problems of inflation and unemployment. Furthermore, Indonesia needs to increase policies to overcome problems on the supply side.
Originality/value
The results of this study provide new insights into application of the dual monetary policy toward inflation and unemployment.
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Burak Yungucu and Buerhan Saiti
The purpose of this paper is to investigate the effects of monetary policy on the Islamic financial service industry by studying the findings of the existed literature.
Abstract
Purpose
The purpose of this paper is to investigate the effects of monetary policy on the Islamic financial service industry by studying the findings of the existed literature.
Design/methodology/approach
Because of the unavailability of the empirical models in the existing study, the authors used past studies review and proposed a new theoretical model.
Findings
Majority of these studies have documented the negative effects with the exception of a few. The transmission of the monetary policy has been taken place through interest rate risk, asset-liability mismatch, as well as deposit and financing instability. Furthermore, the examined studies have confirmed the viability of the Islamic monetary policy.
Originality/value
The proposed model may offer some insights to policy makers if it is examined empirically.
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The aim of this paper is to review monetary and systemic liquidity management policies that essentially aim at containing crisis and limiting their spread. A corollary is whether…
Abstract
Purpose
The aim of this paper is to review monetary and systemic liquidity management policies that essentially aim at containing crisis and limiting their spread. A corollary is whether relevant public authorities and market participants have tools at their disposal to deal with a systemic crisis affecting Institution Offering Islamic Financial Services (IIFS).
Design/methodology/approach
The method used in this study is an examination of existing literature. This paper considers mechanisms that may help contain a crisis and those that may foster post crisis recovery in the case of conventional and Islamic finance.
Findings
The progress made to date to develop money markets accessible to IIFS is commendable; however, it is not sufficient. Licensing IIFS in dual financial systems entails a public authority responsibility linked to the authorities’ accountability for the conduct of monetary policy and systemic liquidity management. Licensing an IIFS entails acknowledging the responsibility of being able to manage a system that includes IIFS. This is feasible and possible, but the issue needs to be addressed directly. In a crisis monetary policy and systemic liquidity management will be at the forefront of the stabilization efforts.
Originality/value
The experiences of Bahrain and Malaysia in developing a monetary policy and systemic liquidity management framework for their jurisdiction are assessed. The paper identifies also channels of potential spillover effects from conventional to Islamic finance.
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This paper investigates the structural model of vector autoregression (SVAR) of the interdependent relationship of inflation, monetary policy and Islamic banking variables (RDEP…
Abstract
Purpose
This paper investigates the structural model of vector autoregression (SVAR) of the interdependent relationship of inflation, monetary policy and Islamic banking variables (RDEP, RFIN, DEP, FIN) in Indonesia. By using monthly data for the period 2001M01-2019M12, the impulse response function (IRF), forecasting error decomposition variation (FEDV) is used to track the impact of Sharīʿah variables on inflation (prices).
Design/methodology/approach
This research uses quantitative approach with SVAR model to reveal the problem.
Findings
The empirical results of SVAR, the IRF show that policy shocks have a negative impact on all variables in Islamic banking except the equivalent deposit interest rate (RDEP). The impact of both conventional (7DRR) and Sharīʿah (SBIS) policies has a similar pattern. While the transmission of Sharīʿah monetary variables as a policy operational target in influencing inflation is positive. In addition, the FEDV clearly revealed that the variation in the Sharīʿah financial sector was relatively large in monetary policy shocks and their role in influencing prices.
Originality/value
The empirical results of SVAR, the IRF show that policy shocks have a negative impact on all variables in Islamic banking except the equivalent deposit interest rate ‘RDEP’. The impact of both conventional “7DRR” and Sharīʿah “SBIS” policies has a similar pattern. While the transmission of Sharīʿah monetary variables as a policy operational target in influencing inflation is positive. In addition, the FEDV clearly revealed that the variation in the Sharīʿah financial sector was relatively large in monetary policy shocks and their role in influencing prices.
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Zaheer Anwer, Ahmed Sabit, M. Kabir Hassan and Andrea Paltrinieri
This study akims to investigate the effectiveness of expansionary monetary policy for Islamic capital markets by studying the impact of decrease in policy rates on seven Islamic…
Abstract
Purpose
This study akims to investigate the effectiveness of expansionary monetary policy for Islamic capital markets by studying the impact of decrease in policy rates on seven Islamic equity indices for the period 1996–2019. The transmission mechanism may be different for sampled indices, as they are exposed to Shariah screening that discards certain business sectors and puts limit on debt in capital structure.
Design/methodology/approach
This study uses Markov Switching dynamic regression approach of Hamilton (1988).
Findings
The results show little effectiveness of expansionary monetary policy in both Bear and Bull states, for most of the sample indices.
Originality/value
To the best of the authors’ knowledge, no study has made use of dynamic models to assess the association between monetary policy rate and Islamic index prices. Similarly, the authors found no work exploring the effectiveness of expansionary monetary policy actions in different regime for Islamic Indices. This investigation is important in unraveling whether, in the presence of limitations on selection of business activity and choice of capital structure, monetary policy can change the market sentiment, or it will be ineffective. The present study fills this gap.
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Chiu-Lan Chang, Ming Fang, Bin Hong and Kung-Cheng Ho
To verify the effectiveness of the monetary policy, the impacts of monetary instruments on overnight spread under the interest rate corridor (IRC) are examined. The People's Bank…
Abstract
Purpose
To verify the effectiveness of the monetary policy, the impacts of monetary instruments on overnight spread under the interest rate corridor (IRC) are examined. The People's Bank of China (PBC) has operated the IRC since 2014. To understand the impacts of monetary instruments on overnight spread before and after the IRC framework, the complete samples are divided into two periods.
Design/methodology/approach
To model the overnight spread, an exponential GARCH (EGARCH) approach is used which can examine the interbank market interest rates for monetary policy purposes. The overnight money market plays an important role in the implementation of monetary policy.
Findings
Chinese interest rate liberalization and the implementation of IRC affect the overnight spread in the short-term financing market. Before the implementation of the IRC, the key factor to affect the overnight spread is mainly affected by the PBC's monetary policy control on the liquidity supply side. After the implementation of IRC, the overnight spread can be the largest part explained by the liquidity demand side and the PBC's multiple monetary instruments have significant impacts on the reduction of overnight spread.
Originality/value
The overnight spread has recently been influenced by various factors that are directly or closely related to the monetary policy instruments and the interest rate policy of the PBC. Chinese interest rate liberalization and the implementation of interest rate corridor policy affect the overnight spread in the short-term financing market.
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This paper aims to answer how effective the loan-to-value (LTV) regulation has been since 2011 for conventional and Islamic (participation) banks in Turkey in terms of curbing…
Abstract
Purpose
This paper aims to answer how effective the loan-to-value (LTV) regulation has been since 2011 for conventional and Islamic (participation) banks in Turkey in terms of curbing mortgage loan growth and delinquency[1].
Design/methodology/approach
The authors first use unit root tests and tests of difference in loan and property price data in pre-LTV and post-LTV period. Second, the authors follow Chow test and ordinary least squares regression analyses to test for a structural break when sensitivity of mortgage loan and delinquency growth changes to property price changes considered.
Findings
The authors find that two periods are statistically different, while the significance level is lower for Islamic banks. Moreover, loan growth has become less responsive to property price increases; delinquency sensitivity to property price changes has significantly increased in the post-LTV period for conventional banks, while this is not the case for Islamic (participation) banks.
Originality/value
This paper not only increases empirical evidence regarding the effectiveness of LTV ratio policy but also fills the gap in the literature by providing a comparison between conventional banks and Islamic (participation) banks.
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Mahdi Salehi, Mehdi Behname and Mohammad Sadegh Adibian
This paper aims to examine the interrelationships of monetary policy's structural shocks, the real exchange rate and stock prices.
Abstract
Purpose
This paper aims to examine the interrelationships of monetary policy's structural shocks, the real exchange rate and stock prices.
Design/methodology/approach
According to quarterly data, variables such as gross domestic product, consumer price index, the real exchange rate, stock price and monetary policy indices in the structural vector autoregressions model are estimated. These variables' volatility is attributed to other variables’ structural shocks separately, and analysis of variance tables for all variables is presented.
Findings
The results show that structural shock on the exchange rate does not affect the stock price, but the monetary policy's structural shock positively impacts the real exchange rate. Moreover, the real exchange rate and monetary policy's structural shocks have a negative impact on the stock price index. However, no significant effect is found pertain to the real exchange rate structural shock, statistically.
Originality/value
To the best of the authors’ knowledge, the current study model is relatively novel in developing countries, and the study sought strength to develop knowledge on the subject of the study.
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Amine Ben Amar and AbdelKader O. El Alaoui
The purpose of this study is to understand the profit-sharing structure at equilibrium of the two-tier mudharaba contract in a pure Islamic banking system and then in a dual…
Abstract
Purpose
The purpose of this study is to understand the profit-sharing structure at equilibrium of the two-tier mudharaba contract in a pure Islamic banking system and then in a dual banking system.
Design/methodology/approach
This paper aims to better understand the profit-sharing structure at the equilibrium of the two-tier mudharaba. It first assumes a purely Islamic banking system and then introduces a risk-free asset to simulate trade-off opportunities in a dual banking system.
Findings
First, by using a model inspired from a neoclassical framework and assuming that the Islamic banks are the only channel for financing the economy, the results suggest that the profit-sharing structure built up by the three parties, the bank, the depositor and the entrepreneur, at the time of signing the Mudharaba contract has to be drawn up in the way that, at the ex post, the remuneration of each necessary production factor, capital and labor, should equal its marginal productivity. Second, the authors relax the hypothesis of a purely Islamic financial system and introduced a risk-free asset in favor of the depositor. Thereby, the authors are able to apprehend the financial balance of the two-tier mudharaba contract by simulating the trade-offs that can occur in a dual banking system. The findings suggest that the profit-sharing structure is not the same whether we are at the level of bank assets (bank–entrepreneur relationship) or liabilities (bank–depositor relationship). For the asset side, an increase (respectively decrease) in the expected profit of the mudharaba implies a decrease (respectively increase) in the share of the bank, whereas an increase (respectively decrease) in the return of the risk-free asset and/or the risk underlying the project implies an increase (respectively decrease) of the bank’s share in the expected profit.
Originality/value
Theoretical work that has studied the determinants of the ratio of profit sharing between capitalists and entrepreneurs in the context of mudharaba has omitted that this contract should be assessed at both asset and liability sides of the bank. To overcome this theoretical gap, this paper aims to better understand the structure of profit sharing at the equilibrium of the two-tier mudharaba, while taking into account the contractual specificities between the different stakeholders.
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In recent years, with the gradual differentiation of economic and financial cycles, it has been increasingly difficult for monetary policies to remain balanced in stabilizing both…
Abstract
Purpose
In recent years, with the gradual differentiation of economic and financial cycles, it has been increasingly difficult for monetary policies to remain balanced in stabilizing both economy and finance. Taking the period of 1999–2017 as a sample, the purpose of this paper is to find whether the synergy between the growth cycle and the price cycle is constantly improving in the economic cycle is more appropriate.
Design/methodology/approach
The key to stabilizing the economic cycle lies in the monetary policy and it should abandon the goal of boosting growth in a timely manner and turn into the goal of maintaining steady growth. At present, quantitative monetary policy is still more effective than price-oriented monetary policy in smoothing the economic cycle.
Findings
The impact of quantitative regulation on the financial cycle is more neutral, whereas price regulation will increase the volatility of price and financial cycles in the course of smoothing the growth cycle. In view of the continuous differentiation between the economic and financial cycles, it is realistic and reasonable to accelerate the establishment of a sound dual-pillar regulatory framework of “monetary policy and macro-prudential policy.”
Originality/value
The macro-prudential policy is specially used to smooth the financial cycle, so as to reduce the burden and increase the efficiency of the monetary policy on regulating economic cycle. Moreover, the transformation of monetary policy to price-oriented regulation must keep pace with the construction of the dual-pillar regulation framework and complement each other to prevent undesirable consequences in the financial sector. On the other hand, monetary policy still needs to rely on quantitative regulation in the future. The research in this paper also provides a new perspective for understanding the internal and external reform of China’s monetary policy in recent years.
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