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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.

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.

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.

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.

The purpose of this paper is to determine the optimal profit-and-loss sharing (PLS)-based contract when market frictions occur.

This paper opts for an adverse selection analysis and Monte Carlo simulation to assess the less risky contract for the principal and the agent when musharakah, mudarabah and venture capital financings are used in imperfect markets. Furthermore, this framework enables us to capture the level of market frictions that the principal can bear and the level of audit that he/she may undertake to mitigate bankruptcy.

The simulation results reveal that Musharakah is the less risky contract for the principal compared to Mudarabah and venture capital when the shock is low and high. Furthermore, our findings indicate that the increase of market frictions engender higher audit cost and profit-sharing ratios. The increase of the safety index in the case of high shock is most likely attributed to the increase of the audit parameter for all contracts to mitigate the selfish behavior of the agent. Accordingly, the principal tends to require a higher profit-sharing ratio to compensate for the severer information asymmetry.

This paper has two main limits. First, the results were not compared to real data because the latter are not available. Second, this paper is a general framework to determine the less risky contract for the principal and does not consider the firm and sectoral characteristics. However, it can be extended in various ways where stress can be put on conflicts of interest between the principal and the agent with the aim to determine the contract that aligns their interests. In addition, the examination of firm dynamics in the case of equity and debt financing can provide further arguments for economic agents regarding the value of the firm, the growth rate and the lifetime of the project when information is asymmetrically distributed.

The findings shed some light on the necessity of the Islamic finance experts to re-think of the promotion of Musharakah because it dominates the two other contracts when market frictions occur.

Although Maghrabi and Mirakhor (2015), Alanzi and Lone (2015) and Lone and Ahmad (2017) among others showed that profit and loss sharing can ensure economic growth, findings may motivate economic players to consider Musharakah financing with the aim to reach financial inclusion and social, which is in line with Shari’ah requirements and Islamic values.

Although several papers highlighted the financial contracting theory from Shari’ah perspective, they ignored the financial issues that are associated to adverse selection. This paper provides theoretical evidence regarding the selection of the less risky financing mode in case of equity financing using Monte Carlo simulation.

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.

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.

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.”

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.

The conventional and new inflation bias theories present two distinct facets to explain the outcome of excess inflation without output gains by a discretionary central banker. First is the temptation to achieve a higher than potential output, and, second is not to let it falter. The authors explicitly account for these two distinct dimensions in empirical formulations both exogenously and endogenously. Specifically, the purpose of this paper is to investigate what monetary discretion can and cannot do in terms of dual objectives – inflation and growth – across boom and bust cycles, both directly and indirectly.

(i) Segregate the economic activity into boom and bust cycles; (ii) Explicitly account for the two dimensions of conventional and new inflation bias theories; and (iii) model and estimate the direct and indirect effects of monetary discretion across business cycles.

The results indicate considerable asymmetries in the effects of monetary discretion and distribution thereof across objectives and cycles. The direct impact of monetary discretion tends to induce significantly higher inflation in boom and bust cycles, while it exerts a positive but insignificant effect on output. The inflation effects are more pronounced in boom than bust cycles and vice versa are the output effects. The indirect effects on output via inflation are significantly pernicious, which are more pronounced in expansions than recessions.

In a nutshell, instead of benefiting, monetary discretion tends to harm in terms of both the dual policy objectives, which cautions about its well calculated and constrained use only.

This chapter builds monthly time-series of Divisia monetary aggregates for the Gulf area for the period of June 2004 to December 2011, using area-wide data. We also offer an “economic stability” indicator for the Gulf Cooperation Council (GCC) area by analyzing the dynamics pertaining to certain variables such as the dual price aggregates, aggregate interest rates, and the Divisia aggregate user-cost growth rates. Our findings unfold the superiority of the Divisia indexes over the officially published simple-sum monetary aggregates in monitoring the business cycles. There is also direct evidence on higher economic harmonization between GCC countries – especially in terms of their financial markets and the monetary policy. Monetary policy often uses interest rate rules, when the economy is subject only to technology shocks. In that case, money is nevertheless relevant as an endogenous indicator (Woodford, M. (2003). Interest and prices: Foundations of a theory of monetary policy. Princeton, NJ: Princeton University Press.). Properly weighted monetary aggregates provide critical information to policy-makers regarding inside liquidity created by financial intermediaries. In addition, policy rules should include money as well as interest rates, when the economy is subject to monetary shocks as well as technology shocks. The data show narrow aggregates growing while broad aggregates collapsed following the financial crises. This information clearly signals problems with the financial system's ability to create liquidity during the crises.

This paper seeks to focus on the challenge posed by financial globalization before the traditional Westphalian model of monetary sovereignty, claiming that financial globalization of the world's markets leads to new forms of geopolitical rivalry among contemporary governments.

The paper sets the analytical framework for the study of a tripartite foundation of monetary sovereignty in money manager capitalism, consisting of currency associated with the instruments of its manipulation, which are the two largest independent macroeconomic players: the central bank and the state. This raises the issues of dual sovereignty in economy and the ways in which these entities use their sovereign powers on local and global levels.

Current growing interdependence of financial networks increases the number of choices in monetary issues and forces governments to make ever faster adjustments to the machinery of complex monetary instruments which not only facilitate transactions among very different and distant economies, but also obscure the transparency of decision making. The need to ensure, through the central bank's legislation, an independent status of central bankers with respect to politicians, implies that their work be effectively monitored by the public and the respective parliament.

The independence of central banks, which comprises goal independence, instrument independence and personal independence of the decision‐making body of a central bank, increases the accountability of central bankers and raises the issue of sanctions for their misbehavior.

Financial globalization has definitely raised the issue of redistribution of the authority of governments and non‐state agents. A clear hierarchy between currencies at the global level has dual consequences: first, it amplifies the unequal relationship between the leaders and the followers in global monetary circulation; second, global market forces ignore political borders and present a serious challenge for the monetary sovereignty of contemporary governments. Equally, the question of re‐formulation of the concept of a sovereign state is raised.

The purpose of this paper is to empirically analyze the impact of social inclusion factors and foreign fund inflows on reducing gender-based unemployment in India.

A time series data set for the period of 1991–2021 has been considered, and an autoregressive distributed lag methodology has been applied to measure the short- and long-run impact of social inclusion and foreign fund inflows on reducing gender-based unemployment in India.

According to the study’s findings, both social inclusion and foreign fund inflows are critical factors for reducing male unemployment. However, in the case of female unemployment, only social inclusion factors play an important role, whereas foreign fund inflows have no role in it.

Analyzing the factors that affect gender-based unemployment has always been a grey area in literature. There are very few studies that capture gender-based unemployment in India, making this study a novice contribution. Second, it examines the relationship between foreign fund inflows, social inclusion and unemployment, which is another novel area of investigation. Finally, this study provides comprehensive and distinct results for both male and female unemployment that can help policymakers devise gender-based unemployment policies.

The purpose of this paper is twofold, first, to develop an effective tool to assess the performance of the overall economy by creating an assessment ratio that reflects the two top priorities of monetary policy, promoting economic growth and maintaining price stability, and second, to use the annual assessment ratios to build two subsamples, outperformance (better than the historical average) and underperformance, to examine and compare the changes in impacts of monetary and fiscal policy tools on important economic variables in different economic conditions, instead of different time periods.

The assessment ratio is defined as the gross domestic product (GDP) gap/standard deviation of inflation. Essentially, this Growth/Volatility ratio quantifies the price volatility-adjusted long-term output growth, that is, the long-term output growth given 1 per cent of the standard deviation of inflation. The growth has a positive impact on the ratio, while the effect of price volatility is negative. The ratio reflects not only the Fed’s dual goal but also the fundamental economic conditions. A higher value of the ratio indicates that the economy can better handle inflation risk in driving the long-term output growth. As the inflation level is adjusted in the numerator (GDP gap), not the denominator, no matter the Fed is engaging in the fight against inflation, or for reflation (promoting inflation) to prevent deflation and pursue price stability (Bernanke, 2002), the ratio remains consistent with the Fed’s dual goal and prefers a higher value.

Results of this study suggest that impacts of monetary and fiscal policy tools on key economic variables may be cyclic as the economic condition changes. The policy tools can significantly affect inflation volatility and the price volatility-adjusted long-term real output growth in the subpar economic conditions identified with lower assessment ratios. The effects become insignificant when the general economic performance exceeds the historical average. More importantly, results of this study indicate that the funds rate can effectively lower the price volatility, while the fiscal tools can promote long-term real output growth in the subpar economic conditions. Therefore, when inflation volatility spikes and the real output growth slows, the decisive and timely monetary and fiscal policy decisions become necessary to enhance policy effectiveness.

The assessments of effectiveness of monetary policy in the literature are based on some or all of four descriptive statistics: inflation, inflation volatility, output growth, and growth volatility. Each of them measures only one aspect of an economic phenomenon and cannot reflect the well-known conflicting relationship between maintaining price stability and promoting economic growth. For instance, from the policy perspective, a higher price volatility combined with a higher GDP growth rate for one period may or may not outperform another period with lower price volatility and growth rate. However, the assessment ratio created in this study considers both price volatility and economic growth simultaneously and can, therefore, be used as an effective measure of the overall economic performance.