On the Stability of an Islamic Financial System

Hossein Askari (), Noureddine Krichene () and Abbas Mirakhor ()

PSL Quarterly Review, 2014, vol. 67, issue 269, 131-167

Abstract: n an Islamic economy, the financial sector functions to support the real sector. There are no interest rate based debt instruments. Financial assets are based on risk and return sharing and are contingent claims. Real as well as monetary forces determine the rate of return. As in traditional general equilibrium theory, there is a price system comprised of a real rate of return to capital and a price level of commodities that simultaneously clears asset and commodity markets. An Islamic financial system is shown to be stable, namely the economy evolves from short-term equilibrium to a stable long-term equilibrium.

Keywords: Islamic Finance; Financial Stability; Equilibrium; Chicago Plan (search for similar items in EconPapers)
JEL-codes: E2 E3 E4 F4 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

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