This paper empirically investigates the effectiveness of monetary policy transmission in the Gulf Cooperation Council (GCC) countries using a structural vector autoregressive model. The results indicate that the interest rate and bank lending channels are relatively effective in influencing non-hydrocarbon output and consumer prices, while the exchange rate channel does not appear to play an important role as a monetary transmission mechanism because of the pegged exchange rate regimes. The empirical analysis suggests that policy measures and structural reforms-strengthening financial intermediation and facilitating the development of liquid domestic capital markets-would advance the effectiveness of monetary transmission mechanisms in the GCC countries.
Fiscal sustainability remains a paramount challenge for small economies with high debt and greater vulnerability to climate change. This paper applies the model-based sustainability test for fiscal policy in a panel of 16 Caribbean countries during the period 1980-2018. The results indicate that the coefficient on lagged government debt is positive and statistically significant, implying that fiscal policy in the Caribbean takes corrective actions to counteract an increase in the debt-to-GDP ratio. Nonlinear estimations, however, show that the quadratic debt parameter is negative, which indicates that fiscal policy response is not adequate to ensure sustainability at higher levels of debt. We also find that the fiscal stance tends to be countercyclical on average during the sample period. These empirical results confirm that maintaining prudent fiscal policies and implementing growth-enhancing structural reforms are necessary to build fiscal buffers and ensure debt sustainability with high probability even when negative shocks occur over the long term.
This paper examines the empirical behavior of conventional bank deposit rates and the rate of return on retail Islamic profit-and-loss sharing (PLS) investment accounts in Malaysia and Turkey, using monthly data from January 1997 to August 2010. The analysis shows that conventional bank deposit rates and PLS returns exhibit long-run cointegration and the time-varying volatility of conventional bank deposit rates and PLS returns is correlated and is statistically significant. The pairwise and multivariate causality tests show that conventional bank deposit rates Granger cause returns on PLS accounts. These findings have policy implications in terms of price stability and financial stability.Keywords: Interest rates; Islamic banks; causality; time-varying volatility correlation JEL Classifications: E42; E43; E49; F59; G14; G15; O16 IntroductionIslamic banking has emerged as a mainstream alternative to conventional finance in a growing number of countries.2 Along with the global expansion of conventional modes of financing, the Islamic banking industry has grown significantly since its inception in the early 1970s and moved beyond the confines of a niche market, largely due to greater financial liberalization and an unprecedented inflow of petrodollars to the Middle East (Imam and Kpodar, 2010). The combined balance sheets of Islamic banks grew from $150 billion in 1990 to about $1 trillion in 2010, with more than 300 sharia-compliant institutions operating in 80 countries. While the share of Islamic banking is still small compared to conventional finance at about 1 percent of the global banking system, there is growing interest in sharia-compliant institutions and instruments. Some researchers have argued that Islamic financial institutions are a viable alternative to promote economic growth and are better-suited to absorb macro-financial shocks because of structural advantages over the conventional banking model (Dridi and Hasan, 2010;Ebrahim and Safadi, 1995;Khan, 1986;and Mills and Presley, 1999). On the other hand, El-Gamal (2005) and others have concluded that Islamic finance simply seeks to replicate the functions of conventional financial instruments and is primarily a form of rent-seeking legal arbitrage. The purpose of this study is to offer an empirical analysis of the behavior of conventional bank deposit rates and the rate of return on retail sharia-compliant profit-and-loss sharing (PLS) investment accounts in two countries where both systems operate.
This article conducts a firm-level analysis of the effect of taxation on corporate investment, using large-scale panel data on non-financial firms over the period 1990-2014, and controlling for macrostructural differences among ASEAN countries. We find a significant degree of persistence in fixed investment over time, which varies with firm characteristics, such as size, growth prospects, profitability and leverage. The non-linear estimations indicate that taxation facilitates business investment (possibly by enabling public investment in infrastructure and human capital, and the proper functioning of government institutions), but this effect turns negative and stifles private investment growth as the tax burden increases.
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