Granger-causal relationship between islamic bank financing and macroeconomic variables: evidence from Malaysia based on ARDL

Halim, Hafeez and Masih, Mansur (2016): Granger-causal relationship between islamic bank financing and macroeconomic variables: evidence from Malaysia based on ARDL.

Abstract

The paper attempts to study the Granger-causal relationship between Islamic bank financing and interest rate, stock price and real industrial production as the proxy of macroeconomic variables.. Malaysia is used as a case study and the ARDL method is used for the analysis. The results tend to indicate that Islamic bank financing is not independent of interest rate but is mainly driven by interest rate followed by stock price. That is a very interesting finding since at least in theory, the Islamic bank financing should be free from the conventional interest rate Also, it is evidenced that the Islamic bank financing is led by the stock market. Finally, Islamic bank financing is not dependent on the real economic activity in terms of industrial production. These findings are plausible and have important policy implications for a developing country like Malaysia.

• Item Type: MPRA Paper
• Language: English
• Keywords: Islamic bank financing, macroeconomic variables, Granger-causality, ARDL, Malaysia
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy

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