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

This paper focuses on developing a model to study the effect of sukuk issuance on the inflation rate of top sukuk issuing islamic economies at 2014 . for this purpose , as the available sample size is small , a bayesian regression model is applied which contains key supply and demand side factors in addition to the outstanding sukuk volume as potential determinants of inflation rate as the response variable. in the suggested model , inflation rate variable shows an apparent right skewness where the efficiency of the log transformation for this variable is confirmed via box-cox approach . to give bayesian estimators of the regression parameters , we have implemented an mcmc algorithm including 100,000 iterations in the winbugs software . the results show that sukuk volume is a significant determinant of inflation in selected islamic countries . however, its increase could only decline the rate of inflation in the well- developed capital market economies, where the sukuk could be used as a policy instrument for controlling inflation . also the bayesian estimation of the other regression coefficients shows that the increase of money growth and exchange rate growth lead to higher inflation rates .