Can Islamic Financing Ease in Monetary Policy Uncertainty – A Proposal for Islamic Monetary Policy

Purpose: The impact of monetary policy uncertainty in Pakistan on economic conditions, financial markets, and investor confidence is substantial. Historically, the conventional monetary system has failed to manage inflation, which has led to an uncertain monetary policy environment. The primary objective of this document is to offer a comprehensive analysis of monetary policy uncertainty determinants using the quadratic function of Islamic financing. Methods: The bound-testing ARDL assessment confirmed a U-shaped effect of overall producer and consumer financing on uncertainty. Findings: The results highlight that Islamic financing management can help reduce monetary policy uncertainty while increasing production can assist in exacting gains from Islamic financial development for monetary policy effectiveness. Originality/Value: This study is instrumental in highlighting the ability of the Islamic financial system to reduce monetary policy uncertainty.