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Effect of Islamic financial system stability on economic performance in Indonesia

This study constructs a financial stability index for the Islamic financial system of Indonesia using the dynamic factor model and then links it to economic performance employing a nonlinear autoregressive distributed lag (NARDL) model. The financial stability index constructed from a broad range of...

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Main Authors: Law, Siong Hook, M. Ridhwan, Masagus
Format: Article
Published: Bank Indonesia Publisher 2022
Online Access:http://psasir.upm.edu.my/id/eprint/101115/
https://jimf-bi.org/index.php/JIMF/article/view/1567
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id my.upm.eprints.101115
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spelling my.upm.eprints.1011152023-05-23T07:51:15Z http://psasir.upm.edu.my/id/eprint/101115/ Effect of Islamic financial system stability on economic performance in Indonesia Law, Siong Hook M. Ridhwan, Masagus This study constructs a financial stability index for the Islamic financial system of Indonesia using the dynamic factor model and then links it to economic performance employing a nonlinear autoregressive distributed lag (NARDL) model. The financial stability index constructed from a broad range of macrofinancial variables captures well the 2008-2009 global financial crisis and the 2020-2021 COVID 19 pandemic crisis periods. The most significant results suggest that positive and negative shocks in Islamic financial stability in the long run increase and decrease economic performance, respectively. The quantile regression results also demonstrate that Islamic financial stability is statistically significant throughout all quantiles in promoting economic performance, although it plays a greater role at lower quantiles and diminishes when the economic performance is at a high level. Our results highlight that the stability of the Islamic financial system deepening would positively enhance economic performance. Bank Indonesia Publisher 2022-08-30 Article PeerReviewed Law, Siong Hook and M. Ridhwan, Masagus (2022) Effect of Islamic financial system stability on economic performance in Indonesia. Journal of Islamic Monetary Economics and Finance, 8 (3). 371 - 406. ISSN 2460-6146; ESSN: 2460-6618 https://jimf-bi.org/index.php/JIMF/article/view/1567 10.21098/jimf.v8i3.1567
institution Universiti Putra Malaysia
building UPM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Putra Malaysia
content_source UPM Institutional Repository
url_provider http://psasir.upm.edu.my/
description This study constructs a financial stability index for the Islamic financial system of Indonesia using the dynamic factor model and then links it to economic performance employing a nonlinear autoregressive distributed lag (NARDL) model. The financial stability index constructed from a broad range of macrofinancial variables captures well the 2008-2009 global financial crisis and the 2020-2021 COVID 19 pandemic crisis periods. The most significant results suggest that positive and negative shocks in Islamic financial stability in the long run increase and decrease economic performance, respectively. The quantile regression results also demonstrate that Islamic financial stability is statistically significant throughout all quantiles in promoting economic performance, although it plays a greater role at lower quantiles and diminishes when the economic performance is at a high level. Our results highlight that the stability of the Islamic financial system deepening would positively enhance economic performance.
format Article
author Law, Siong Hook
M. Ridhwan, Masagus
spellingShingle Law, Siong Hook
M. Ridhwan, Masagus
Effect of Islamic financial system stability on economic performance in Indonesia
author_facet Law, Siong Hook
M. Ridhwan, Masagus
author_sort Law, Siong Hook
title Effect of Islamic financial system stability on economic performance in Indonesia
title_short Effect of Islamic financial system stability on economic performance in Indonesia
title_full Effect of Islamic financial system stability on economic performance in Indonesia
title_fullStr Effect of Islamic financial system stability on economic performance in Indonesia
title_full_unstemmed Effect of Islamic financial system stability on economic performance in Indonesia
title_sort effect of islamic financial system stability on economic performance in indonesia
publisher Bank Indonesia Publisher
publishDate 2022
url http://psasir.upm.edu.my/id/eprint/101115/
https://jimf-bi.org/index.php/JIMF/article/view/1567
_version_ 1768009436496920576
score 13.211869

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