In the fall of 1928, the Imam of Java, a certain Mohammad Basyuni Imran, had a letter delivered to the Lebanese author and scholar, Shakib Arsalan. In his letter, Basyuni Imran requested Arsalan to explain the reasons for the backwardness of Muslims of the time compared to other nations. Furthermore, Basyuni asked Arsalan to suggest what they need to do to join the ranks of nations that have overtaken them and, in many cases, rule over them. Arsalan published his response in a series of articles written for the Cairo-based Islamic journal, Al-Manar. Subsequently, these articles were combined and published in a book in 1930 with the title: Why did Muslims lag behind? And why did others progress? In his response, Arsalan begins with an analysis of what has gone wrong. He addresses the belief of some that Islam is to blame for the backwardness of Muslims. He goes on to give examples of how advanced nations progressed while holding firmly onto their religious beliefs. In simple, elegant prose, Arsalan takes the reader on a fascinating walk through history. There are references to pre-Islamic times and the early Islamic period, French colonialists in North Africa and their efforts to convert Muslim populations to Christianity, goings on in the British Houses of Parliament on the issue of transubstantiation, and much more. The latter part of the book has examples of recent (1930s and earlier) achievements of Muslims when they set their minds on doing something. It is a measure of the merit and excellence of Arsalan’s words that his book has never been out of publication. It remains among Arabic speakers as popular and relevant today as at the time it was first published almost a century ago.
Asian economies are increasingly integrated to the global economy through trade and financial linkages, exposing them to the international financial cycle. This paper explores how external shocks are transmitted to Asian economies and whether the use of policies, such as the monetary policy interest rate, foreign exchange intervention (FXI) and macroprudential measures (MPMs), can mitigate the impact of these external shocks. It uses panel quantile regressions on a sample of 14 Asian advanced and emerging economies (AEs and EMs) to assess the impact of financial and real shocks on investment and GDP growth at the median and 5th percentile tail. It finds that external financial shocks tend to have a larger effect on Asian economies than real shocks, and that the main transmission channels through which shocks are propagated are capital flows (particularly via corporate and bank balance sheets) for EMs, and credit for AEs. It also finds evidence that for Asian EMs, FXI may help dampen the capital flows and real exchange rate channels and mitigate financial shocks in the short run, and monetary policy transmission tends to be relatively weak; meanwhile MPMs can help mitigate the credit channel for both AEs and EMs.
In emerging Asia, banks constitute the dominant source of financing consumption and investment, and bank balance sheets comprise large gross FX assets and liabilities. This paper extends the DSGE model of Gertler and Karadi (2011) to incorporate these key features and estimates a panel vector autoregression on ten Asian economies to understand the role of the banking sector in transmitting spillovers from the global financial cycle to small open economies. It also evaluates the effectiveness of foreign exchange intervention (FXI) and other macroeconomic policies in responding to external financing shocks. External financial shocks affect net external liabilities of banks and the exchange rate, leading to changes in credit supply by banks and investment. For example, a capital outflow shock leads to a deprecation that reduces the net worth and intermediation capacity of banks exposed to foreign currency liabilities. In such cases, the exchange rate acts as shock amplifier and sterilized FXI, often deployed by Asian economies, can help cushion the economy. By contrast, with real shocks, the exchange rate serves as a shock absorber, and any FXI that weakens that function can be costly. We also explore the effectiveness of the monetary policy interest rate, macroprudential policies (MPMs) and capital flow management measures (CFMs).
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