Central banking and monetary management in islamic financial environment

Muhammad Hanif and Salman Sheikh
Authors registered in the RePEc Author Service: Salman Ahmed Shaikh ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Islamic Finance; Central Bank; Interest Rate; Nominal Income Targeting (search for similar items in EconPapers)
JEL-codes: E58 G12 (search for similar items in EconPapers)
Date: 2009-11, Revised 2010-05-25
New Economics Papers: this item is included in nep-ara, nep-cba, nep-cwa, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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https://mpra.ub.uni-muenchen.de/23548/1/MPRA_paper_23548.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:22907

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