Location of Repository

Central banking and monetary management in islamic financial environment

By M. Nadim Hanif and Salman Sheikh

Abstract

Continuous growth in Islamic finance calls for studying the framework in which the monetary policy maker (i.e., central bank) performs its functions. Central banks in Muslim countries are using various instruments for monetary policy purpose including interest rate. As a result, Islamic financial institutions (IFIs) are facing issues in benchmarking the price of financial instruments. Acceptable solution to benchmarking lies in the presence of a real economic activity in the base of any proposal and its feasibility for business performance when put against conventional banking. This paper presents empirical evidence of statistical equivalence of nominal GDP growth rate and official interest rate for ‘advanced,’ ‘all,’ and some Muslim countries. We propose nominal GDP growth rate as benchmark for pricing domestic financial transactions of IFIs as well as for pricing external bilateral/ multilateral loans. The paper also suggests nominal income targeting as monetary policy regime.

Topics: G12 - Asset Pricing; Trading volume; Bond Interest Rates, E58 - Central Banks and Their Policies
Year: 2009
OAI identifier: oai:mpra.ub.uni-muenchen.de:22907

Suggested articles

Preview


To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.