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Determinants of islamic banking investment account rates: Malaysia’s evidence

Author

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  • Ariffin, Kartina
  • Masih, Mansur

Abstract

This paper makes an attempt to discern the determinants of the Islamic banks’ investment account rates (IBIA). Malaysia is used as a case study. The standard time series techniques are employed for the analysis. The findings tend to indicate that the IBIA is the most endogenous (dependent) of all the variables in that it is driven by the most exogenous (independent) variable unemployment rate followed by the exchange rate, CPI and treasury bill rate. It appears that the IBIA is benchmarked against the treasury bill rate raising questions about the Shariah (Islamic) compliance of the Islamic banks’ investment account rates. The findings have strong policy implications.

Suggested Citation

  • Ariffin, Kartina & Masih, Mansur, 2018. "Determinants of islamic banking investment account rates: Malaysia’s evidence," MPRA Paper 104833, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:104833
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    File URL: https://mpra.ub.uni-muenchen.de/104833/1/MPRA_paper_104833.pdf
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    References listed on IDEAS

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    1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    2. Serhan Cevik & Joshua Charap, 2015. "The Behavior of Conventional and Islamic Bank Deposit Returns in Malaysia and Turkey," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 111-124.
    3. Martin Čihák & Heiko Hesse, 2010. "Islamic Banks and Financial Stability: An Empirical Analysis," Journal of Financial Services Research, Springer;Western Finance Association, vol. 38(2), pages 95-113, December.
    4. Chong, Beng Soon & Liu, Ming-Hua, 2009. "Islamic banking: Interest-free or interest-based?," Pacific-Basin Finance Journal, Elsevier, vol. 17(1), pages 125-144, January.
    5. M. -H. Liu & D. Margaritis & A. Tourani-Rad, 2009. "Monetary policy and interest rate rigidity in China," Applied Financial Economics, Taylor & Francis Journals, vol. 19(8), pages 647-657.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Islamic bank investment account rate; VECM; VDC; Malaysia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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