Advanced Search
MyIDEAS: Login

Monetary Policy In Islamic Economic Framework: Case of Islamic Republic of Iran

Contents:

Author Info

  • Kiaee, Hasan

Abstract

Abstract When we accept money and its functions in the Islamic economic framework, the same as all other economic systems, we should consider monetary policy as an important available tool for governments to pursuit macroeconomic objectives. But the problem is that, in the conventional economic system, the interest rate plays a critical role for executing monetary policy while in the Islamic economic framework, interest rate is forbidden according to Shariah rules and we are not allowed to use interest based instruments for monetary policy. The dominant view between Islamic scholars is that, since interest based instruments like open market operation is forbidden in Islamic economics, hear, we should only use monetary aggregate instruments like credit ceiling for executing monetary policy. But in reality, many Islamic countries do not restrict theirselves to only monetary aggregate instruments; instead, they use widely profit rate instruments like Musharakah certificates as a substitute for interest based instruments. What we discuss in this paper is the explanation for this gap between theory and practice in the monetary policy of Islamic economic system. Comparing interest based instruments and monetary aggregate instruments from economic point of view shows that, when we use interest based instruments, there is more macroeconomic stability in goods and money markets after executing monetary policy. This advantage of interest based instruments over monetary aggregate instruments has made monetary officials of Islamic countries like Islamic republic of Iran, use extensively profit rate instruments like Musharakah certificates for executing monetary policy.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/4837/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4837.

as in new window
Length:
Date of creation: 13 Apr 2007
Date of revision:
Handle: RePEc:pra:mprapa:4837

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: Islamic Economics; Islamic Monetary Policy; Iranian Monetary System;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:4837. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.