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Stabilization and Growth in an Open Islamic Economy

  • Mirakhor, Abbas
  • Zaidi, Iqbal

Islam proposes the replacement of an interest-based financial system with one which operates on the basis of risk and profit sharing. Using a general equilibrium model, the paper investigates some open-economy implications of adopting Islamic banking for economic growth and stabilization. It analyzes the long-run effects of Islamic banking on international capital flows and on the economy's capacity to adjust to disturbances. It concludes that monetary policy can be used effectively for stabilization purposes and that disturbances to asset positions are absorbed efficiently in an Islamic financial system.

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File URL: http://mpra.ub.uni-muenchen.de/56003/1/MPRA_paper_56003.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 56003.

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Date of creation: 1988
Date of revision:
Publication status: Published in IMF Working Papers 88.22(1988): pp. 1-37
Handle: RePEc:pra:mprapa:56003
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Web page: http://mpra.ub.uni-muenchen.de

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  1. Branson, William H, 1976. "The Dual Roles of the Government Budget and the Balance of Payments in the Movement from Short-Run to Long-Run Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 345-67, August.
  2. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  3. Miller, Marcus H, 1973. ""Competition and Credit Control" and the Open Economy," The Manchester School of Economic & Social Studies, University of Manchester, vol. 41(1), pages 123-40, March.
  4. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
  5. Abbas Mirakhor & Mohsin S. Khan, 1991. "Islamic Banking," IMF Working Papers 91/88, International Monetary Fund.
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