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An old wine in new shari'a compliant bottles? A time-frequency wavelet analysis of the efficiency of monetary policy in dual financial systems

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  • Amine Ben Amar

    (LEDA-SDFi - Stratégie et Dynamiques Financières - LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

Abstract

Understanding the interrelationships between Islamic and conventional banks in dual financial systems is crucial for monetary policy decision makers. Using the wavelet coherence approach, this paper empirically investigates the dependency between the LIBOR and an Islamic benchmark rate, namely the IIBR (Islamic Interbank Benchmark Rate). This approach allows us to study the dynamics of the relationship between the LIBOR and the IIBR in the time-frequency space, then, to analyze to which extent Islamic financial institutions react to interest rate and, finally, to conclude whether the presence of Islamic banks enhance (or not) the efficiency of monetary policy. The result suggests not only that Islamic and conventional banks are alike, in terms of their business model, but also that Islamic banks react to changes in interest rates with some delay, which may affect the effectiveness of the monetary policy transmission mechanism.

Suggested Citation

  • Amine Ben Amar, 2018. "An old wine in new shari'a compliant bottles? A time-frequency wavelet analysis of the efficiency of monetary policy in dual financial systems," Post-Print hal-01745747, HAL.
  • Handle: RePEc:hal:journl:hal-01745747
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01745747
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    References listed on IDEAS

    as
    1. Mariam El Hamiani Khatat, 2016. "Monetary Policy in the Presence of Islamic Banking," IMF Working Papers 16/72, International Monetary Fund.
    2. Nejib Hachicha & Amine Ben Amar, 2015. "Does Islamic bank financing contribute to economic growth? The Malaysian case," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 8(3), pages 349-368, August.
    3. Muhammad S Al-Jasser & Ahmed Banafe, 2002. "The development of debt markets in emerging economies: the Saudi Arabian experience," BIS Papers chapters,in: Bank for International Settlements (ed.), The development of bond markets in emerging economies, volume 11, pages 178-182 Bank for International Settlements.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Islamic banks; conventional banks; IIBR; LIBOR; wavelet coherence;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G2 - Financial Economics - - Financial Institutions and Services

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