The purpose of this paper is to investigate the effects of monetary policy on the Islamic financial service industry by studying the findings of the existed literature.
Because of the unavailability of the empirical models in the existing study, the authors used past studies review and proposed a new theoretical model.
Majority of these studies have documented the negative effects with the exception of a few. The transmission of the monetary policy has been taken place through interest rate risk, asset-liability mismatch, as well as deposit and financing instability. Furthermore, the examined studies have confirmed the viability of the Islamic monetary policy.
The proposed model may offer some insights to policy makers if it is examined empirically.
