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The welfare effects of inflation and financial innovation in a model of economic growth: An Islamic perspective

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  • Abdel-Hameed M. Bashir
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    Abstract

    Constructs a simple neoclassical growth model in which financial factors play an important role. The model demonstrates that the injunction against fixed interest payments induces the monetary authority in the Islamic economy to develop and innovate alternative financial instruments that do not have fixed nominal values and do not bear predetermined rates of return. The model also proves that financial innovation is welfare enhancing, while inflation reduces welfare and hampers growth. The model further proves that the government in an Islamic economy can effectively coordinate its fiscal and monetary policies to finance the budget using the Zakat and seigniorage.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

    Volume (Year): 29 (2002)
    Issue (Month): 1 (January)
    Pages: 21-32

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    Handle: RePEc:eme:jespps:v:29:y:2002:i:1:p:21-32

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    Related research

    Keywords: Economics; Finance; Inflation; Innovation; Loss; Profit sharing;

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    Cited by:
    1. Simplice A, Asongu, 2012. "Software piracy, inequality and the poor: evidence from Africa," MPRA Paper 43860, University Library of Munich, Germany.
    2. Amir Kia & Ali F. Darrat, 2003. "Modeling Money Demand under the Profit-Sharing Banking Scheme: Evidence on Policy Invariance and Long-Run Stability," Carleton Economic Papers 03-13, Carleton University, Department of Economics, revised Apr 2007.

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