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Do the macroeconomic variables have any impact on the Islamic bank deposits?An application of ARDL approach to the Malaysian market

Author

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  • Mobin, Mohammad Ashraful
  • Masih, Mansur

Abstract

This paper makes an attempt to investigate the impact of selected macroeconomic variables on the level of deposits in the Islamic banking system. Malaysia is used as a case study. We apply ‘Auto – Regressive Distributive Lag’ model which has taken care of a major limitation of the conventional cointegrating tests in that they suffer from pre-test biases. Based on above rigorous methodology, we try to measure both long- and short-run relationships among these variables. By applying ARDL techniques, we find that the determinants such as, Inflation has strong impact on deposits of Islamic banking system while other macroeconomic variables GDP and Kuala Lumpur composite Index do not have significant impact. Most of the theories related to savings behaviour are not applicable to Islamic banking customers. Therefore, there is a possibility that religious belief might play an important role in the banking decisions of Muslim customers. The most relevant finding from the policy perspective is the significant negative effect of inflation on the Islamic banks’ saving deposits. Controlling inflation and thereby providing macroeconomic stability is essential for promoting Islamic banking.

Suggested Citation

  • Mobin, Mohammad Ashraful & Masih, Mansur, 2014. "Do the macroeconomic variables have any impact on the Islamic bank deposits?An application of ARDL approach to the Malaysian market," MPRA Paper 62342, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:62342
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    File URL: https://mpra.ub.uni-muenchen.de/62342/1/MPRA_paper_62342.pdf
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    References listed on IDEAS

    as
    1. Pradeep Agrawal, 2001. "The relation between savings and growth: cointegration and causality evidence from Asia," Applied Economics, Taylor & Francis Journals, vol. 33(4), pages 499-513.
    2. Prema-Chandra Athukorala & Pang-Long Tsai, 2003. "Determinants of Household Saving in Taiwan: Growth, Demography and Public Policy," Journal of Development Studies, Taylor & Francis Journals, vol. 39(5), pages 65-88.
    3. Nicholas Sarantis & Chris Stewart, 2001. "Saving Behaviour in OECD Countries: Evidence from Panel Cointegration Tests," Manchester School, University of Manchester, vol. 69(s1), pages 22-41.
    4. Richard Cohn & Bharat Kolluri, 2003. "Determinants of household saving in the G-7 countries: recent evidence," Applied Economics, Taylor & Francis Journals, vol. 35(10), pages 1199-1208.
    5. Kokila Doshi, 1994. "Determinants Of The Saving Rate: An International Comparison," Contemporary Economic Policy, Western Economic Association International, vol. 12(1), pages 37-45, January.
    6. Serhan Cevik & Joshua Charap, 2015. "The Behavior of Conventional and Islamic Bank Deposit Returns in Malaysia and Turkey," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 111-124.
    7. repec:bla:manchs:v:69:y:2001:i:0:p:22-41 is not listed on IDEAS
    8. Rahmatina A. Kasri & Salina Hj. Kassim, 2009. "Empirical Determinants of Saving in the Islamic Banks: Evidence from Indonesia المحددات التجريبية للادخار في البنوك الإسلامية: أدلة من إندونيسيا," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 22(2), pages 181-201, July.
    9. Chong, Beng Soon & Liu, Ming-Hua, 2009. "Islamic banking: Interest-free or interest-based?," Pacific-Basin Finance Journal, Elsevier, vol. 17(1), pages 125-144, January.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Nur Setyowati, 2019. "Macroeconomic Determinants of Islamic Banking Products in Indonesia," Economies, MDPI, vol. 7(2), pages 1-15, June.
    2. Nazib, Nur Afiyah & Masih, Mansur, 2017. "The response of monetary policy shocks on Islamic bank deposits: evidence from Malaysia based on ARDL approach," MPRA Paper 82094, University Library of Munich, Germany.
    3. Majeed, Raseena & Masih, Mansur, 2016. "Impact of macroeconomic variables on shariah stock markets: evidence from Malaysia based on ARDL approach," MPRA Paper 106118, University Library of Munich, Germany.

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    More about this item

    Keywords

    Malaysia; Islamic Banking; Depositors' behaviour; ARDL cointegration;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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