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The effect of an interest-free banking system on level and volatility of inflation: a GARCH model

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  • Karim Eslamloueyan

Abstract

Some Muslim researchers argue that a no-interest financial system better achieves the goal of price stability. Using a GARCH model, this article examines the effect of an interest-free banking system on level and volatility of inflation in a country with a full-fledged no-interest financial system. Iran is chosen for our case study because it has initiated the most far-reaching experiments with interest-free banking in the Muslim world. The results indicate that the new financial setting in Iran has reduced inflation uncertainty but has failed to lower the level of inflation.

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  • Karim Eslamloueyan, 2008. "The effect of an interest-free banking system on level and volatility of inflation: a GARCH model," Applied Economics Letters, Taylor & Francis Journals, vol. 15(11), pages 879-882.
    • Handle: RePEc:taf:apeclt:v:15:y:2008:i:11:p:879-882
    DOI: 10.1080/13504850600892840
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