The Influence of Interest Rates on Rental Rate in the United States Islamic Home Financing

  • Authors

    • Jamilu Jamilu A Salihu
    • . .
    2018-08-24
    https://doi.org/10.14419/ijet.v7i3.30.18332
  • ARDL, Rental rate, Islam home finance.

  • Abstract

    The purpose of this paper is to investigate, whether the rental rate is free from the influence of interest rates on Islamic home financing. The study considers some selected macroeconomic variables to analyze the influence of interest rates on the rental rate. The study focuses on the United States data covering from the first quarter of 1990 to the last quarter of 2016. The study adopts Autoregressive distributed lags (ARDL) model to analyze the long-run and short-run relationships between the rental rate and the macroeconomic variables. The study finds consistent evidence that rental rate is free from the influence of short term and long term interest rates in both long-run equilibrium and short-run dynamic results in the United States Islamic home financing. Hence, the rental rate could be accepted as an alternative to interest rates in Islamic home financing. The result contributes towards finding that the rental rate is free from the influence of interest rate in Islamic home financing. To the best of the author’s knowledge, the present study is the first of its kind which empirically investigates the influence of interest rates on the rental rate in Islamic home financing.

     

     

  • References

    1. [1] Abd Karim, M. Z., & Gee, C. S. (2008). Stock market integration between Malaysia and its major trading partners (1994-2002).

      [2] Alharbi, A. (2015). Development of the Islamic Banking System. Journal of Islamic Banking and Finance, 3(1), 12-25.

      [3] Bahmani-Oskooee, M., & Ng, R. C. W. (2002). Long-run demand for money in Hong Kong: an application of the ARDL model. International Journal of Business and Economics, 1(2), 147.

      [4] Banerjee, A., Dolado, J. J., Galbraith, J. W., & Hendry, D. (1993). Co-integration, error correction, and the econometric analysis of non-stationary data. OUP Catalogue.

      [5] Bardhan, A. D., Datta, R., Edelstein, R. H., & Kim, L. S. (2003). A tale of two sectors: Upward mobility and the private housing market in Singapore. Journal of Housing Economics, 12(2), 83-105.

      [6] Brown, R. L., Durbin, J., & Evans, J. M. (1975). Techniques for testing the constancy of regression relationships over time. Journal of the Royal Statistical Society. Series B (Methodological), 149-192.

      [7] Égert, B., & Mihaljek, D. (2007). Determinants of house prices in central and eastern Europe. Comparative economic studies, 49(3), 367-388.

      [8] Engle, R. F., & Granger, C. W. (1987). Co-integration and error correction: representation, estimation, and testing. Econometrica: journal of the Econometric Society, 251-276.

      [9] Fauziah, Taib, M., Ramayah, T., & Abdul Razak, D. (2008). Factors influencing intention to use diminishing partnership home financing. International Journal of Islamic and Middle Eastern Finance and Management, 1(3), 235-248.

      [10] Harvey, A. C., & Harvey, A. C. (1993). Time series models (Vol. 2): Harvester Wheatsheaf New York.

      [11] Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of economic dynamics and control, 12(2-3), 231-254.

      [12] Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica: journal of the Econometric Society, 1551-1580.

      [13] Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration—with applications to the demand for money. Oxford Bulletin of Economics and statistics, 52(2), 169-210.

      [14] Latif, E. (2015). Immigration and housing rents in canada: A panel data analysis. Economic Issues, 20(1), 91-108.

      [15] Laurenceson, J., & Chai, J. C. (2003). Financial reform and economic development in China: Edward Elgar Publishing.

      [16] Liew, V. K.-S. (2004). Which lag length selection criteria should we employ?

      [17] Marco, L. (2008). Determinants of New York City residential rental prices. Michigan journal of business, 1(2), 61-83.

      [18] Meera, A., & Abdul Razak, D. (2005). Islamic home financing through Musharakah Mutanaqisah and Al-Bay’Bithaman Ajil contracts: A comparative analysis. Review of Islamic Economics, 9(2), 5-30.

      [19] Meera, A., & Abdul Razak, D. (2009). Home financing through the musharakah mutanaqisah contracts: some practical issues. Journal of Islamic Economics, 22(1), 3-27.

      [20] Muhamad, S. F., & Rahman, A. H. A. (2013). An evaluation on Musharakah Mutanaqisah based house financing by Islamic banks in Malaysia.

      [21] Narayan, P. (2004). Reformulating critical values for the bounds F-statistics approach to cointegration: an application to the tourism demand model for Fiji (Vol. 2): Monash University Australia.

      [22] Osmani, N. M., & Abdullah, M. F. (2010). Musharakah mutanaqisah home financing: A review of literatures and practices of Islamic banks in Malaysia. International Review of Business Research Papers, 6(2), 272-282.

      [23] Pesaran, M. H., & Pesaran, B. (1997). Working with Microfit 4.0: interactive econometric analysis;[Windows version]: Oxford University Press.

      [24] Pesaran, M. H., Shin, Y., & Smith, R. J. (1996). Testing for the'Existence of a Long-run Relationship': Faculty of Economics, University of Cambridge.

      [25] Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326.

      [26] Phillips, P. C., & Hansen, B. E. (1990). Statistical inference in instrumental variables regression with I (1) processes. The Review of Economic Studies, 57(1), 99-125.

      [27] Rama, A. (2010). Islamic benchmarking: An alternative to interest rate; Evidence from home financing in Malaysia. Paper presented at the Proceeding of the Conference on 4th Global Economic Direction, Kuwait University.

      [28] Ranzini, S. L. (2007). Islamic finance (finally) taking roots in North America. Islamic Finance News, 4(13), 1-10.

      [29] Salihu, J. A., & Yusof, R. M. (2017). Macroeconomic determinants of housing prices: Empirical investigation of the South Africa housing market. Actual Problems of Economics, 8(194), 16-24.

      [30] Simon, Z. Z., Achsani, N. A., Manurung, A. H., & Sembel, R. (2015). The Determinants of Rental Rates and Selling Prices of Office Spaces in Jakarta: A Macroeconometric Model Using VECM Approach. International Journal of Economics and Finance, 7(3), 165.

      [31] Smolo, E., & Kabir Hassan, M. (2011). The potentials of mushÄrakah mutanÄqisah for Islamic housing finance. International Journal of Islamic and Middle Eastern Finance and Management, 4(3), 237-258.

      [32] Tze, S., & Yee, S. (2013). Macroeconomic determinants of Malaysia housing market. Human and Social Science Research, 1(2), 119-127.

      [33] Yusof, R. M., Kassim, S. H., Majid, M., & Hamid, Z. (2011). Determining the viability of rental price to benchmark Islamic home financing products: evidence from Malaysia. Benchmarking: An International Journal, 18(1), 69-85.

  • Downloads

  • How to Cite

    Jamilu A Salihu, J., & ., . (2018). The Influence of Interest Rates on Rental Rate in the United States Islamic Home Financing. International Journal of Engineering & Technology, 7(3.30), 351-356. https://doi.org/10.14419/ijet.v7i3.30.18332

    Received date: 2018-08-27

    Accepted date: 2018-08-27

    Published date: 2018-08-24