Inflation Behavior in Top Sukuk Issuing Countries: Using a Bayesian Log-linear Model

This paper focused on developing a model to study the effect of sukuk issuance on the inflation rate in top sukuk issuing Islamic economies at 2014‎. ‎For this purpose‎, ‎as the available sample size is small‎, ‎a Bayesian approach to regression model is used which contains key supply and demand side factors in addition to the outstanding sukuk volume as potential determinants of inflation rate‎. ‎In the suggested model‎, ‎inflation rate variable shows an apparent right skewness and the efficiency of log transformation for this variable is confirmed via Box-Cox approach‎. ‎To give Bayesian estimators of the regression parameters‎, ‎we have implemented an MCMC approach including 100,000 iterations in the WinBUGS software‎. ‎The results show that sukuk volume is a significant determinant of inflation in selected Islamic countries‎, ‎but only in ‎the ‎well-‎developed‎ capital market economies its increase could decline the rate of inflation and so sukuk could be used as a ‎‎‎policy instrument for controlling inflation‎. ‎Also the Bayesian estimation of the other parameters shows that increase of money growth and exchange rate growth lead to higher inflation rates‎. ‎