Does Malaysian Islamic money market efficiently predict inflation in the future? Evidence from fisher effect theory

Zainal, Nurazilah and Law, Siong Hook and Md Nassir, Annuar and Bakri, Mohammed Hariri (2020) Does Malaysian Islamic money market efficiently predict inflation in the future? Evidence from fisher effect theory. International Journal of Innovation, Creativity and Change, 11 (3). pp. 665-682. ISSN 2201-1323

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Abstract

Fisher theory explains relationship between interest rate and expected inflation rate that indicates market efficiency. In Malaysia, the Islamic money market has gained importance since its own largest composition in Malaysian financial market. This study attempts to examine the existence of Fisher Effect relationship in Malaysian Islamic Money Market. Period of the time series data spanning from 2010 to 2017. Three variables include in this paper which are Inflation Rate (INF), 3-months Malaysian Islamic Treasury Bills Rate (MITB) and Islamic Interbank Rate (IIR). First stage of analysis is to examine the existence of the Fisher effect relationship by applying Autoregressive Distributed Lag (ARDL) approach as an estimation method. Second stage analysis is to determine the Fisher Effect relationship appear in a weak or strong form relationship. The findings suggest the Fisher Effect theory exists in Malaysian Islamic money market thus implies the efficiency of Islamic Money Market to predict inflation’s movement in the future. However, it appears in a weak form of relationship. Overall, the outcome of this study is highly benefit to policy maker as the role of Fisher Effect in predicting inflation reflect an effective monetary policy to promote economy growth and sustainable development.

Item Type:	Article
Uncontrolled Keywords:	Islamic money market rates, Fisher effect, Inflation rates, Monetary policy, ARDL cointegration test
Divisions:	Faculty of Technology Management and Technopreneurship
Depositing User:	Sabariah Ismail
Date Deposited:	07 Dec 2020 10:19
Last Modified:	04 Aug 2023 11:06
URI:	http://eprints.utem.edu.my/id/eprint/24474
Statistic Details:	View Download Statistic

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