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The Effectiveness of Monetary Policy Transmission in a Dual Banking System: Further Insights from TVP-VAR Model

Amine Ben Amar ()

Economics Bulletin, 2019, vol. 39, issue 4, 2317-2332

Abstract: Using a time-varying VAR model with drifting parameters and stochastic volatilities, this paper attempts to empirically investigate the monetary policy transmission in Saudi Arabia, as well as the role of Islamic banks in this transmission and the interactions between Islamic and conventional banks over a period of approximately 25 years. The findings provide empirical evidence of the dependence of Islamic banking activity on oil revenues, and suggest that, in practice, there are few differences between the Islamic banks' modus operandi and the methods used by conventional banks. However, the results do not provide clear evidence that Islamic banks are more stabilizing than conventional banks, even though the sensitivity of the non-oil economic activity to Islamic bank financing seems to be relatively less volatile than its sensitivity to conventional bank credits.

Keywords: oil-based economies; dual financial systems; Islamic banks; monetary policy transmission channels; time-varying VAR; stochastic volatility. (search for similar items in EconPapers)
JEL-codes: E5 C1 (search for similar items in EconPapers)
Date: 2019-10-13
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