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Can Islamic Financing Ease in Monetary Policy Uncertainty – A Proposal for Islamic Monetary Policy

Author

Listed:
  • Noman Arshed

    (Sunway University – Department of Economics)

  • Sadia Yasmin

    (UMT, Lahore – Department of Islamic Banking & Finance)

Abstract

Purpose: The impact of monetary policy uncertainty in Pakistan on economic conditions, financial markets, and investor confidence is substantial. Historically, the conventional monetary system has failed to manage inflation, which has led to an uncertain monetary policy environment. The primary objective of this document is to offer a comprehensive analysis of monetary policy uncertainty determinants using the quadratic function of Islamic financing. Methods: The bound-testing ARDL assessment confirmed a U-shaped effect of overall producer and consumer financing on uncertainty. Findings: The results highlight that Islamic financing management can help reduce monetary policy uncertainty, while increasing production can assist in exacting gains from Islamic financial development for monetary policy effectiveness. Originality/Value: This study is instrumental in highlighting the ability of the Islamic financial system to reduce monetary policy uncertainty.

Suggested Citation

  • Noman Arshed & Sadia Yasmin, 2025. "Can Islamic Financing Ease in Monetary Policy Uncertainty – A Proposal for Islamic Monetary Policy," Journal of Islamic Banking, Economics and Policy, Islamic Finance Review Ltd, vol. 1(2), pages 32-51, June.
    • Handle: RePEc:epz:jibepj:v:1:y:2025:i:2:p:32-51
    DOI: 10.63740/k52vmw60
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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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