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The stability of the demand for money function in Islamic and non-Islamic monetary policy regimes

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  • I L Awad
  • A M Soliman

Abstract

This study, using quarterly data from Egypt and Iran, extends the literature on demand for money by examining the stability of money demand functions in two different monetary policy regimes, an Islamic banking system and a conventional banking system. A stable demand for money enables central banks accurately to predict the demand for money and hence attain a price stability objective through the adjustment of the money supply. This paper adopts a restructured form of Friedman's (1956) model, which considers real demand for money as an extension to the theory of demand for durable goods. The study estimates the long-run demand for money functions in Iran, which represents an Islamic banking system, and Egypt, which represents a conventional banking system. The study then examines empirically the stability of the demand for money function under two different financial systems. The study finds that the demand for money function is stable under the Islamic banking system and unstable under the interest-based banking system.

Suggested Citation

  • I L Awad & A M Soliman, 2016. "The stability of the demand for money function in Islamic and non-Islamic monetary policy regimes," Economic Issues Journal Articles, Economic Issues, vol. 21(1), pages 67-85, March.
    • Handle: RePEc:eis:articl:116awad
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    Cited by:

    1. Ibrahim L. Awad, 2019. "Revisiting the Exchange Rate Pass-Through to Domestic Inflation in Egypt: Why Is the Statistical Association Weak in the Short Run?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 18(1), pages 59-78, June.
    2. Ibrahim L. Awad, 2021. "The Islamic Rate of Return Versus the Nominal Rate of Interest: A Macroeconometric Model," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 47(2), pages 253-272, April.
    3. Ibrahim L. Awad, 2019. "Revisiting the Exchange Rate Pass-Through to Domestic Inflation in Egypt: Why Is the Statistical Association Weak in the Short Run?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 18(1), pages 59-77, June.
    4. Ibrahim L. Awad & Ashraf Galal Eid, 2017. "The Mechanisms of Stagflation in Egypt: The Arab Spring Five Years Later," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 129-145.
    5. Ibrahim L. Awad, 0. "The Islamic Rate of Return Versus the Nominal Rate of Interest: A Macroeconometric Model," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 0, pages 1-20.

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