nep-ara New Economics Papers
on Arab World
Issue of 2010‒03‒20
four papers chosen by
Quentin Wodon
World Bank

  1. Real Interest Rates, Bubbles and Monetary Policy in the GCC countries By E. M. Bentour; W. A. Razzak
  2. Recovering Risk-Neutral Densities from Exchange Rate Options: Evidence in Turkey (Kur Opsiyonlarindan Riske Duyarsiz Yogunluk Fonksiyonu Cikarimi: Turkiye Ornegi) By Halil Ýbrahim Aydin; Ahmet Degerli; Pinar Ozlu
  3. Islamic finance: what does it change, what it does not - the structure - objectives mismatch and its consequences By Hasan, Zubair
  4. Exchange Rate Undervaluation to Foster Manufactured Exports: A Deliberate Strategy? By Patrick PLANE; SEKKAT; Ridha NOUIRA

  1. By: E. M. Bentour; W. A. Razzak
    Abstract: The Gulf Cooperation Council countries (GCC) include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. Their monetary policy objective is to stabilize the foreign price, i.e., exchange rate instead of the domestic price level, where the nominal interest rate is equalized with the US federal fund rate, but the inflation rates are independent. High oil prices and the depreciating US dollar caused inflation to rise and real interest rates to be persistently negative in the UAE and Qatar. Asset prices bubbles formed then burst creating large loses. They could have moderated the effect of, or avoided, the bubble had they floated the currency and stabilized domestic prices.
    Keywords: Inflation, real interest rate, bubbles.
    JEL: E31 E37 E58
    Date: 2010–01–03
  2. By: Halil Ýbrahim Aydin; Ahmet Degerli; Pinar Ozlu
    Date: 2010
  3. By: Hasan, Zubair
    Abstract: This paper raises the issue of an initial structure-objective mismatch in the launching of Islamic finance. The abolition of interest and promotion of growth with equity were goals of the conceived system. These goals expressed a long run vision to improve the condition of the Muslim communities across the world. However, the organizational form adopted for Islamic finance was of the existing commercial banks which provided essentially short-term loans on interest to trade industry and commerce. The choice thus involved an intrinsic mismatch between the structure and objectives of Islamic finance. The mismatch did carry some advantages, but on a more important side it exposed Islamic finance to commitments and influences which could not mostly align well with the goals the pioneers had in mind. Note that in focus here is not the reversal of the mismatch but its consequences that have forced the nascent Islamic system to convergence and competition with the mature conventional finance the West dominates. It is not the ground realities that are being adapted to Shari’ah norms; it is the norms that are being stretched to limit for meeting the demands of the conventional system. Ordinary Muslims who hoped to benefit from Islamic financing remain unattended. Thus, what Islamic finance can or cannot change will depend on where its ongoing integration with the conventional system leads it to. Currently, most merits claimed for the Islamic system defy evidence. The basic reforms financial systems require in the face of current crisis are the control of credit, leverage lure, and speculation. Islamic finance is in principle better equipped to achieve these ends.
    Keywords: Islam; Finance; convergence; credit creation; leverage; social responsibility;derivatives;Shari'ah; financial crisis
    JEL: D63 E51 E50 E61
    Date: 2010–02–21
  4. By: Patrick PLANE (Centre d'Etudes et de Recherches sur le Développement International); SEKKAT; Ridha NOUIRA
    Abstract: Recent literature suggests that a proactive strategy consisting of deliberate real exchange rate depreciation can promote exports diversification and growth. This paper is built on these recent developments and investigates whether four developing countries have adopted such a strategy. Data from Egypt, Jordan, Morocco and Tunisia are used to construct and compare the macroeconomic Real Effective exchange rate (REER), similar exchange rates at the sector level (SREER) and the macroeconomic Equilibrium Real Effective exchange rate (EREER). It shows that there are instances where the objective of diversifying exports through depreciation of exchange rate comes at the expense of further misalignment (REER departs from the EREER) and, then, monetary authorities are doomed to choose. The results show that Morocco and Tunisia are choosing the proactive exchange rate strategy while Egypt and Jordan are not. This fits with the observation that the former are doing much better than the latter in terms of exports diversification.
    Keywords: Exchange rate, Exports diversification, Misalignment, Undervaluation
    JEL: O53 O24 O14
    Date: 2010

This nep-ara issue is ©2010 by Quentin Wodon. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.