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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.

Suggested Citation

  • 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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