THE REGIME SWITCHING OF CYCLE INSTABILITY OF ISLAMIC BANKING AND THE ECONOMY: EVIDENCE FROM INDONESIA, MALAYSIA, AND PAKISTAN

This study aims to examine the cyclical instability of Islamic banking in Indonesia, Malaysia, and Pakistan. A stable system can give public confidence conduct transactions thus grow economy. The proxy variable for stability used is z-score, with 156 periods research data from January 2007 December 2019. Markov Switching Vector Autoregression (MS-VAR) method was employed. results show that Indonesia based on z-score more than others. Nevertheless, terms regression all variables, regime shifting, duration crisis, overall Malaysian displays best performance. Indonesian model mostly affected by inflation, whereas Malaysia Pakistan are financing deposit ratio fluctuation global oil, respectively.