rate 15 basis points on average, subject to possible judgmental adjustments. armed with this information and their own actually, the taylor rule has the stronger implication that the nominal funds rate should rise more than one - for - one when inflation rises, implying an increase in the real funds rate as well ( this prescription is the so - called taylor principle ). the taylor principle seems likely to be a feature of any good monetary policy and thus provides an important guidepost for policymakers. for example, one proposal would have the federal reserve adjust the growth of the monetary base in response to current macroeconomic conditions ( mccallum, 1988 ). another would replace the output gap in the taylor rule with output growth, a variable that ( unlike the output gap ) can be measured directly without reference to unobserved variables like “ fullemployment output ” ( orphanides and williams, 2002 ). robust feedback policies may also be useful when members of the policy committee disagree among themselves about how the economy works, if such a policy seems likely to produce acceptable results in each of the competing models or frameworks. although the simulation - based literature described in the text has produced many valuable insights, it also has a number of shortcomings : first, in conducting simulation exercises, researchers of necessity can consider only a relatively small number of simple and highly stylized economic models out of the large universe of possible alternatives. thus, simulations cannot demonstrate conclusively that any particular simple feedback policy would be robust to the types of uncertainty actually faced by policymakers. second, although these analyses are predicated on the assumption that policymakers do not know the structure of the economy, they usually assume ( somewhat inconsistently ) that private agents not only know the true model but also know the central bank ’ s feedback policy, which allows them to form accurate policy expectations. allowing for symmetrical uncertainty on the part of policymakers and private agents is difficult analytically but might produce different results. third, in assessing competing policies, these analyses ( with some exceptions ) often ignore the possibilities that policymakers will learn from their mistakes, modify or abandon policies that are producing bad results, or take into account their uncertainty about the underlying economic structure when they form their policies. estimates of how strong inflation pressures are likely to be over the next few quarters, financial market participants should be able to forecast future values of the short - term interest rate, allowing them to price bonds and other financial assets more efficiently. because, under a simple feedback policy, private -

a neighbouring jurisdiction. islamic financial products need some level of harmonisation in terms of product features to gain mass acceptance. we at the central bank of bahrain are working with the international islamic financial market to set certain standards on some capital and money market products, but banks themselves could work more closely to establish common disclosure standards for the costs of financing. additionally, we at the central bank have noted the continuing need for high quality human resources within islamic banks. islamic banking has been growing so fast that it has been difficult for banks to find enough skilled or qualified staff. this is why the cbb has participated with islamic institutions in bahrain in setting up the waqf fund to provide financial and technical support in upgrading current training programs and introduce new ones. it is hoped that we will begin to see a larger number of financiers qualified in sharia – related subjects in the near future. such initiatives can only be to the benefit of islamic banking and i urge more institutions to participate in the funding and support of the fund and its works. i think at this point i should talk about governance challenges facing islamic financial institutions. a major issue which is growing in importance is sharia compliance and how to provide a satisfactory framework to assure investors and other stakeholders that the activities of the bank are within the permitted scope of sharia. islamic banks have various mechanisms to ensure sharia compliance in the products and activities of the institution. the first and most obvious body is the sharia supervisory board. this body produces judgements or fatwas on products or structures that the bank intends to provide. the next body is the internal sharia review function which performs post - facto reviews of the activities of a bank. the last body is the external auditor which, in addition to verifying the accounts of the bank, also checks to ensure that the bank correctly followed aaoifi sharia standards. there are differing perceptions about the respective scope of authority of these three bodies and therefore there is a need to reach consensus on the functions of these respective bodies. this is clearly an area where the institutions, sharia scholars and the standard setters need to agree upon what constitutes best practice and set an agreed set of standards. the next challenge is that of accounting standards. there are currently some 60 aaoifi accounting, auditing, governance and sharia standards. this body of work is testimony to the commitment and continuing efforts of aaoifi since its establishment in 1990 to the development of accounting and auditing standards for islamic institutions. however