The effectiveness of Qard-al-Hasan (interest free loan) as a tool of monetary policy

2019 ◽  
Vol 12 (1) ◽  
pp. 130-151 ◽  
Author(s):  
Mohammad Selim
Keyword(s):  
Monetary Policy ◽  
Foreign Currency ◽  
Full Employment ◽  
Excess Demand ◽  
Price Stability ◽  
Theoretical Ground ◽  
Real World Data ◽  
Content Type ◽  
Interest Rate Policy ◽  
Islamic Economic

Purpose This paper aims to investigate the macroeconomic effects of Qard-al-Hasan (QH) as a tool of monetary policy (MP) and its effectiveness in achieving full employment and price stability in the economy. Design/methodology/approach QH-based MP and its effects on major macroeconomic variables are examined on theoretical ground by using the standard aggregate output and aggregate expenditure model within the framework of Islamic economic principles. Findings QH-based MP positively influences real sectors of the economy and increases output, and the economy returns to full employment. QH provides the lowest possible borrowing costs across the economy and thus triggers rightward shift in aggregate supply curve and thus increases output and lowers price level. In addition, increase in output eliminates excess demand or shortages and thus maintains price stability. Furthermore, QH-based MP also increases exportable surplus and exports, decreases imports as well as increases inflow of funds and foreign currency reserves with the Central Bank and thus makes MP more effective. Research limitations/implications QH-based MP is usually expansionary MP, and as such, it can be argued that there is a probability that QH-based MP may lead to higher inflation rate. However, in this study, it has been shown with real world data in Table II, that 23 countries in Group 1 have pursued zero or negative interest rate policy and their experiences mitigate such probability. Originality/value This is, perhaps, the first paper that presents a complete model of QH as a tool of MP with fully explained transmission mechanism. This is new contribution in the literature of Islamic finance where theoretical model on QH is systematically developed and applied as an effective tool of MP in attaining full employment and price stability. This model of QH-based MP can unfold a new horizon of uninterrupted economic growth, full employment and price stability by increasing output and employment, as well as by eliminating excess demand or shortages.

Istisna’a based monetary policy and its effectiveness in achieving full employment and price stability

2020 ◽  
Vol 13 (4) ◽  
pp. 707-726
Author(s):  
Mohammad Selim
Keyword(s):  
Monetary Policy ◽  
Labor Productivity ◽  
Full Employment ◽  
Manufacturing Sector ◽  
Value Added ◽  
High Growth ◽  
Price Stability ◽  
Theoretical Ground ◽  
Content Type ◽  
The Impact

Purpose This paper aims to explore Istisna’a as a tool of monetary policy (MP) and examines its effectiveness in achieving full employment income and price stability. Design/methodology/approach This paper uses Istisna’a as a tool of MP and examines its effects on key macroeconomic variables on purely theoretical ground. The effectiveness and the impact of Istisna’a-based MP is examined by using aggregate output and aggregate expenditure model, embedded with Islamic economic principles, including zakat function. Findings Istisna’a-based MP immediately creates well paid jobs, positively contributes and expands the size of the manufacturing sector, increases capital per person employed, labor productivity and thus increases output, employment and promotes industrialization. Increase in the size of manufacturing sector will not only increase manufactured value-added exports but also cut high valued manufactured imports and thus increases positive trade balance and eventually reduces trade deficits. Increase in labor productivity will improve the standard of living, and eventually the economy will yield sustainable high growth rates, full employment and prosperity. Originality/value This is probably one of the first attempt to systematically develop the Istisna’a-based MP with detailed MP transmission mechanism. This new contribution in the field of Islamic MP will unveil the horizon of sustainable economic growth, creation of well paid jobs, expansion of manufacturing sector, rapid industrialization and the increase in capital per person employed across the economy, and eventually Istisna’a-based MP will be one of the most effective tool of MP for transforming an economy into a relatively higher and sophisticated stages which will eventually promote sustainable development.

scholarly journals Albania's Monetary Policy and the Basic Indicators that Effect the Economic Growth

2019 ◽  
Vol 2 (2) ◽  
pp. 51
Author(s):  
Bernard Balla
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Full Employment ◽  
Price Stability ◽  
Macroeconomic Policies ◽  
Consumer Prices

Macroeconomic policies aim to stabilize the economy by achieving their goal of price stability, full employment and economic growth. Price stability is the responsibility of macroeconomic policies that are developed to maintain a low inflation rate, contribute to the solidity of the domestic product and maintain an exchange rate that can be predictable. The purpose of this paper is to analyze Albania's monetary policy by highlighting the main indicators that can be used as a measurement of the efficiency of this policy in the economic development. The literature review shows that there are many attitudes regarding the factors that need to be taken into consideration when analyzing monetary policies, including the elements of fiscal policies. In the Albanian economy, the prices and the level of inflation are the most important aspects. The Bank of Albania uses the inflation targeting regime, considering that the main indicator of inflationary pressures in the economy is the deviation of inflation forecasted in the medium term by its target level. In numerical terms, the bank intends to maintain its annual growth in consumer prices at the level of 3%. According to the latest reports published by the Bank of Albania in 2019, monetary policy continues to contribute positively to a financial environment with a low interest rate and an annual inflation rate of 2%. Although the inflation rate hit the lowest value of 1.8 % in 2018, a balanced rate was achieved through the reduction of interest rates and risk premiums in financial markets and, more recently, through the tightening of the exchange rate. These monetary conditions are appropriate to support the growth of domestic demand and the strengthening of inflationary pressures.

Full employment will boost US wage growth

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Labour Market ◽  
Federal Reserve ◽  
Full Employment ◽  
Participation Rate ◽  
Job Seekers ◽  
Secular Stagnation ◽  
Content Type ◽  
Percentage Points ◽  
Jobless Rate

Significance The jobless rate is expected to stay unchanged at 4.9%, its lowest level since November 2007. This decline occurred despite a rebound in the participation rate, up 0.5 percentage points (pp) since September and back to its January 2015 level. Labour market behaviour will be a key determinant of the Federal Reserve (Fed)'s pace of monetary policy tightening this year. Impacts Higher cyclical unemployment may become structural through 'hysteresis', as job seekers become discouraged and stop looking for jobs. Structural declines in the participation rate may be one way in which 'secular stagnation' manifests in post-crisis economies. The Fed will monitor closely any overheating risk in the labour market, together with escalating wage and price pressures.

Macroprudential policy – closing the financial stability gap

2017 ◽  
Vol 25 (4) ◽  
pp. 334-359 ◽  
Author(s):  
Stephan Fahr ◽  
John Fell
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Relative Effectiveness ◽  
Policy Instruments ◽  
Price Stability ◽  
Macroprudential Policy ◽  
Content Type ◽  
Macroprudential Policies ◽  
Trade Offs ◽  
System Resilience

Purpose The global financial crisis demonstrated that monetary policy alone cannot ensure both price and financial stability. According to the Tinbergen (1952) rule, there was a gap in the policymakers’ toolkit for safeguarding financial stability, as the number of available policy instruments was insufficient relative to the number of policy objectives. That gap is now being closed through the creation of new macroprudential policy instruments. Both monetary policy and macroprudential policy have the capacity to influence both price and financial stability objectives. This paper develops a framework for determining how best to assign instruments to objectives. Design/methodology/approach Using a simplified New-Keynesian model, the authors examine two sets of policy trade-offs, the first concerning the relative effectiveness of monetary and macroprudential policy instruments in achieving price and financial stability objectives and the second concerning trade-offs between macroprudential policy instruments themselves. Findings This model shows that regardless of whether the objective is to enhance financial system resilience or to moderate the financial cycle, macroprudential policies are more effective than monetary policy. Likewise, monetary policy is more effective than macroprudential policy in achieving price stability. According to the Mundell (1962) principle of effective market classification, this implies that macroprudential policy instruments should be paired with financial stability objectives, and monetary policy instruments should be paired with the price stability objective. The authors also find a trade-off between the two sets of macroprudential policy instruments, which indicates that failure to moderate the financial cycle would require greater financial system resilience. Originality/value The main contribution of the paper is to establish – with the help of a model framework – the relative effectiveness of monetary and macroprudential policies in achieving price and financial stability objectives. By so doing, it provides a rationale for macroprudential policy and it shows how macroprudential policy can unburden monetary policy in leaning against the wind of financial imbalances.

scholarly journals Analisis perbedaan pengaruh kebijakan suku bunga bank sentral terhadap inflasi di Indonesia

2021 ◽  
Vol 8 (2) ◽  
pp. 99-112
Author(s):  
Cristin Kezia ◽  
Amril Amril ◽  
Yohanes Vyn Amzar
Keyword(s):  
Monetary Policy ◽  
Secondary Data ◽  
Price Stability ◽  
Vector Autoregressive ◽  
Interest Rate Policy ◽  
Rate Policy ◽  
Repo Rate ◽  
The Difference ◽  
Financial Economy ◽  
Positive Effect

The purposes of this study are (1) to analyze the effect of the BI rate on inflation (2) to analyze the effect of the BI 7 day reverse repo rate on inflation (3) to analyze the different effects of the BI rate and the BI 7 day reverse repo rate on inflation. The method used in this study uses secondary data sourced from Bank Indonesia and the Central Bureau of Statistics of the Indonesian financial economy. The analysis of this study with vector autoregressive (VAR) using the Eviews 10 software program, results of the study analyzed that the difference in the influence of the central bank's interest rate policy on inflation in Indonesia, that the BI rate of interest on inflation had a positive and significant effect with a benchmark of 5% or 0.005%, the analysis on the BI 7 day reverse repo rate is not significant at the benchmark of 5% or 0.005% but has a positive effect in reducing inflation in Indonesia which reflects price stability as the final target of monetary policy. Keywords: BI rate, BI 7 day reverse repo rate, Inflation, Vector autoregressive (VAR)

Kenya should manage its public debt

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Public Debt ◽  
Foreign Currency ◽  
Balance Of Payments ◽  
Fiscal Deficit ◽  
Policy Decisions ◽  
Foreign Reserves ◽  
National Elections ◽  
Content Type ◽  
Currency Depreciation

Significance Boosting exports would stabilise Kenya's account and reduce the risk of currency depreciation, both important for Nairobi's ability to manage public debt. Kenya has increased borrowing in recent years in part to fund projects designed to grow the economy. Impacts Threats of al-Shabaab attacks will depress incoming tourism, a source of foreign currency. National elections in 2017 will limit the government's scope for austerity and delay improvements in the fiscal deficit. Increasing inflation will erode government revenues and encourage contractionary monetary policy decisions. Net outflows on the balance of payments and declining foreign reserves will restrict the central bank's ability to intervene in shocks.

Markets are downplaying PiS election risks in Poland

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Foreign Currency ◽  
Strong Support ◽  
Commodity Prices ◽  
Wide Margin ◽  
Content Type ◽  
Opinion Polls ◽  
China’S Economy

Significance Despite PiS's costly spending pledges, its nationalist and populist views and its strong support for a controversial, Hungarian-style debt-relief scheme for holders of foreign currency-denominated mortgages, the prospect is causing little anxiety in financial markets. Investors are taking the view that PiS, which is leading the ruling Civic Platform (PO) party by a wide margin in opinion polls, will be forced to renege on many of its campaign promises. Impacts Poland is less vulnerable to the VW scandal, auto manufacture accounting for a much larger share of Czech and Hungarian jobs and GDP. A hard landing for China's economy is now seen as the largest threat to financial markets, as opposed to a rise in US interest rates. Central Europe's economies are better placed to cope with deteriorating sentiment towards EMs. Downside risks to inflation from falling commodity prices and slower EM growth put the NBP under pressure to loosen monetary policy further.

Informing brand messaging strategies via social media analytics

2016 ◽  
Vol 40 (1) ◽  
pp. 6-24 ◽  
Author(s):  
Constantinos K. Coursaris ◽  
Wietske van Osch ◽  
Brigitte A. Balogh
Keyword(s):  
Social Media ◽  
Strong Support ◽  
Social Media Marketing ◽  
Social Media Analytics ◽  
Theoretical Ground ◽  
Message Content ◽  
Real World Data ◽  
Content Type ◽  
Abstract Content ◽  
Strategic Messaging

Purpose – The purpose of this paper is to offer a theory-driven, evidence-based approach to developing a brand’s messaging strategies on social media encompassing three messaging dimensions, namely, appeal, content, and richness. Design/methodology/approach – Using longitudinal data from three Fortune 200 companies – Delta Airlines, Wal-Mart, and McDonald’s – the authors empirically investigate comprehensive strategic messaging framework. Using ANOVAs and regression analyses, the authors test a set of hypotheses regarding the relations between a brand ' s purchase involvement, its message appeal, message content, and message richness, and engagement. Findings – Findings reveal significant relations between purchase involvement and appeal. Furthermore, the authors find that abstract content categories are best combined with richer media. Finally, both transformation appeal and richer media have a highly significant and positive effect on engagement. Research limitations/implications – The authors offer a theoretical ground and empirical validation of both a comprehensive typology of content categories and a holistic strategic messaging framework that can fill a significant void in the social media marketing literature that lacks integrative models for assessing, classifying, analyzing, and in turn, informing future social media marketing strategies. Practical implications – The validated framework can help managers better understand the diversity of messaging components as well as offer an analytical tool for assessing the nature of engagement associated with each appeal and category. Originality/value – To the best of the author’s knowledge, this paper offers the first comprehensive typology of content categories and validates it in the context of a strategic messages framework using real-world data finding strong support for all hypotheses.

A macro‐prudential perspective of financial regulation

2011 ◽  
Vol 19 (3) ◽  
pp. 289-297 ◽  
Author(s):  
Tristan Nguyen
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Markets ◽  
Financial Stability ◽  
Housing Prices ◽  
Price Stability ◽  
Trade Off ◽  
Content Type ◽  
Animal Spirit

PurposeIn the recent financial crisis, many observers have assigned monetary policy a central role in the crisis. Specifically, they claim that excessively easy monetary policy by the Federal Reserve in the first half of the decade helped to cause a bubble in housing prices in the USA. The purpose of this paper is to analyze the role of monetary policy within the regulatory frameworks of financial markets.Design/methodology/approachThe authors show within a macroeconomic framework a possible trade‐off between price stability and financial stability by differentiating between a technology‐driven bubble and an animal spirit bubble. In their conclusion: if there is a trade‐off between price stability and financial stability, the central bank will have to make a choice between the two objectives. In that case, the question arises of which of the two objectives should take precedence: price stability or financial stability?FindingsFrom this analysis, the authors conclude that a central bank which uses a lexicographic ordering favoring price stability over other objectives is likely to fuel the boom inadvertently (in the case of a technology‐driven bubble) or will decide to do nothing (in the case of an animal spirit bubble) allowing a process of excessive credit creation. The latter seems to be what happened between 2003 and 2008.Practical implicationsIf one wants to reduce the likelihood of future major financial busts, it must be accepted that the central banks (especially the Fed and the ECB) cannot only be responsible for price stability. Maintaining financial stability by preventing excesses in financial markets should be an equally important objective.Originality/valueThe paper gives a new perspective on the role of monetary policy within the regulatory framework. With this macroeconomic framework, the authors are able to show possible trade‐offs between price stability and financial stability. The micro‐ and macro‐prudential approach of this paper is a useful contribution to the discussion about regulatory reforms of financial markets.

scholarly journals Towards the Implementation of Monetary Management in Islamic Economic System Based on Recent Developments

2021 ◽  
Vol 4 (2) ◽  
Author(s):  
Mohammad Kabir Hassan ◽  
Muhammad Abdul Rehman Shah ◽  
Manzoor Ahmad Alazhari ◽  
Mohammad Selim
Keyword(s):  
Monetary Policy ◽  
Full Employment ◽  
Central Banks ◽  
Primary Sources ◽  
Empirical Literature ◽  
Economic Systems ◽  
Banking And Finance ◽  
Recent Developments ◽  
Emerging Issues ◽  
Islamic Economic

Monetary management is an essential part of the objectives of Shari’ah under the umbrella of the preservation of wealth (Ma’al). Our primary sources: Qur’an and Sunn’ah, provide divine legislation on the prohibition of Riba to manage bases of monetary transaction. Further, the juristic tools facilitate scholars to propose solutions to meet the emerging issues on diversified aspects of society. Muslim scholars have always adapted and contributed to the Islamic finance system and regulation, theoretically and practically. In recent decades, Islamic banking and finance has seen strong momentum with double digit growth, fulfilling the monetary requirement of depositors on the liability side along with industry on the asset side. We seek to review the theoretical and empirical literature on Islamic monetary mangement. Monetary management in the Islamic economic context is still an area that needs more research. This paper examines how literature has been developed over time up until modern Islamic economic and banking practices. The findings suggest that Islamic monetary management has been gradually developed in recent years and such development is remarkable steps forward in pursuing Islamic monetary policy independently. In addition, Islamic monetary policy is proved to be relatively more effective compared to interest based conventional monetary policy. The implications of such findings have established new milestones for the central banks of all the countries, including the muslim majority countries for pursuing interest free Islamic monetary policy with full confidence.  Furthermore, there are four major views on Islamic monetary policy and the central banks of the world should choose one of the best methods and views for the greater effectiveness of monetary policy because conventional monetary policy has been less effective in bringing full employment and price stability in recent years and financial crisis has crippled the interest based conventional economic systems quite badly.

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