The welfare effects of inflation and financial innovation in a model of economic growth: An Islamic perspective
Abstract
Constructs a simple neoclassical growth model in which financial factors play an important role. The model demonstrates that the injunction against fixed interest payments induces the monetary authority in the Islamic economy to develop and innovate alternative financial instruments that do not have fixed nominal values and do not bear predetermined rates of return. The model also proves that financial innovation is welfare enhancing, while inflation reduces welfare and hampers growth. The model further proves that the government in an Islamic economy can effectively coordinate its fiscal and monetary policies to finance the budget using the Zakat and seigniorage.
Keywords
Citation
Bashir, A.M. (2002), "The welfare effects of inflation and financial innovation in a model of economic growth: An Islamic perspective", Journal of Economic Studies, Vol. 29 No. 1, pp. 21-32. https://doi.org/10.1108/01443580210414094
Publisher
:MCB UP Ltd
Copyright © 2002, MCB UP Limited