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

Amine Ben Amar

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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.

Keywords: Islamic banks; conventional banks; IIBR; LIBOR; wavelet coherence (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-isf and nep-mon
Note: View the original document on HAL open archive server: https://hal.science/hal-01745747v1
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Citations: View citations in EconPapers (3)

Published in Economics Bulletin, 2018, 38 (1)

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Journal Article: An old wine in new shari'a compliant bottles? A time-frequency wavelet analysis of the efficiency of monetary policy in dual financial systems (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01745747

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