Roles of the Islamic banks in the monetary transmission process in Malaysia
International Journal of Islamic and Middle Eastern Finance and Management
ISSN: 1753-8394
Article publication date: 6 April 2010
Abstract
Purpose
This paper aims to determine the importance of the Islamic banks in the monetary transmission process in the Malaysian economy. In particular, the paper analyzes the relevance of Islamic banks' financing and deposit in channelling the monetary policy effects to the real economy.
Design/methodology/approach
The paper relies on the co‐integration test, impulse response functions, and variance decomposition analysis, focusing on the period from January 1994 to May 2007.
Findings
The results show that both Islamic banks' financing and deposit play important roles in the monetary transmission process in the Malaysian economy. In particular, both Islamic deposit and financing are shown to be statistically significant in linking the monetary policy indicator to the real output.
Practical implications
The results imply that the monetary authority should also consider the Islamic banks in the implementation of monetary policy in Malaysia. The results also imply that ensuring the stability of the Islamic financial institutions is just as important as that of the conventional counterpart to achieve an effective transmission of monetary policy in the economy.
Originality/value
This paper is a pioneer study undertaking empirical investigation on the role of Islamic banks in the monetary transmission process in an economy.
Keywords
Citation
Sukmana, R. and Kassim, S.H. (2010), "Roles of the Islamic banks in the monetary transmission process in Malaysia", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 3 No. 1, pp. 7-19. https://doi.org/10.1108/17538391011033834
Publisher
:Emerald Group Publishing Limited
Copyright © 2010, Emerald Group Publishing Limited