Islamic monetary policy in Malaysia: a conceptual framework
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Monetary policy is an important available tool for governments to pursuit macroeconomic objectives. However, the recent financial crisis has revealed the weaknesses of the conventional monetary policy framework. Monetary policy has been found to be a prominent cause of financial instability. Inability of expansionary monetary policy to induce new lending in many economies is considered as evidence of the impairment of conventional monetary policy transmission mechanism. Additionally, the post-crisis diagnostics have revealed that monetary policy failed to address asset market imbalances. A large number of these studies have focused on the reforms of the conventional system. Some suggest major structural changes while others in frastructural. This concept paper is an attempt to search for an alternative and more efficient monetary policy framework, which is also Shariah compliant for Malaysia. It will also propose risk sharing instruments as substitute monetary policy tools.
Islamic finance , Monetary policy , Equity premium , Risk sharing , Shariah-based benchmark
Mat Sari, Norhanim & Mirakhor, Abbas. (2012, November 27). Islamic monetary policy in Malaysia: a conceptual framework. Paper presented at 2nd ISRA Colloquium 2012: “Islamic Finance in a Challenging Economy: Moving Forward”, Sasana Kijang, Bank Negara Malaysia, Kuala Lumpur, Malaysia.