What is it about?

This paper aims to study on the association between selected macroeconomic variables and Malaysia Shariah Indices. In our study, we used the Vector Error Correction framework by looking at the long run and short run relationship between macroeconomic variables and (i) Kuala Lumpur Shariah Index (1990-2006), and (ii) FTSE Bursa Malaysia EMAS Shariah Index (2007-2011). Monthly data during the twenty one-year period between 1990 and 2011 are collected and tested. In the long run, the impacts of all selected variables on Kuala Lumpur Shariah index for the period of 1990 to 2006 are positive. However, the effect of increases in consumer price index, exchange rate, Treasury Bill and US Federal Fund Rate on Malaysian Shariah index after the period till 2011 are negative. Besides, this study found positive relationship only in industrial production and money supply for the period of 2007 to 2011. In the short run, mix results were found during 1990 to 2011. The result also shows in overall the variables have unidirectional short run causal effect during the study period.

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Why is it important?

Our findings showed that In the long run, the impacts of all selected variables on Kuala Lumpur Shariah index for the period of 1990 to 2006 are positive. However, mix results were found in the short run. Hence, it can be perceived that the standardised set of macroeconomic variables that specified by previous researchers still can be relied but in careful strategy formulation.

Perspectives

The result of this paper shows that in overall, the variables have unidirectional short run causal effect during the study period. Findings of this paper also demonstrate some variables having similar result to other researchers and some not having based on the study period, hence, the standardized set of macroeconomic variables that specified by previous researchers still can be relied but in careful formulation of strategy and policy. In future research, it is recommended to study on how the economy reacts over time through the use of other method for a better overview of Malaysia's macroeconomic system in Islamic setting.

Dr. Azrul Abdullah, Ph.D, C.A.(M), NCE
Universiti Teknologi MARA

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This page is a summary of: Relationship between macroeconomic variables and Malaysia available Shariah Indices, December 2012, Institute of Electrical & Electronics Engineers (IEEE),
DOI: 10.1109/chuser.2012.6504315.
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