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Equilibrium in a Non-Interest Open Economy

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  • Mirakhor, Abbas

Abstract

This paper analyzes an economy in which there are no interest-bearing assets, only equity shares. Equilibrium conditions are derived for the case of a closed economy, an open economy with trade in goods only, and finally one with trade in both goods and equity shares. It is shown that the rate of return to capital equilibrates savings and investment, that the differential between the domestic and foreign rates of return to equity determines the direction of capital flows, and that under a fixed exchange rate system, adjustments induced by exchange rate changes are channeled through the asset accounts.

Suggested Citation

  • Mirakhor, Abbas, 1993. "Equilibrium in a Non-Interest Open Economy," MPRA Paper 56011, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:56011
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    References listed on IDEAS

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    1. Shane, Mathew, 1974. "Capital Markets and the Dynamics of Growth," American Economic Review, American Economic Association, vol. 64(1), pages 162-169, March.
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    3. S. I. Taj El-Din, 1985. "Towards an Islamic Model of Stock Market نحو نموذج إسلامي لسوق الأسهم," Journal of Research in Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 3(1), pages 61-87, January.
    4. Robert A. Mundell, 1960. "The Public Debt, Corporate Income Taxes, and the Rate of Interest," Journal of Political Economy, University of Chicago Press, vol. 68(6), pages 622-622.
    5. Mr. Abbas Mirakhor & Mr. Mohsin S. Khan, 1991. "Islamic Banking," IMF Working Papers 1991/088, International Monetary Fund.
    6. Epstein, Larry G & Hynes, J Allan, 1983. "The Rate of Time Preference and Dynamic Economic Analysis," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 611-635, August.
    7. Fischer, Stanley & Frenkel, Jacob A., 1972. "Investment, the two-sector model and trade in debt and capital goods," Journal of International Economics, Elsevier, vol. 2(3), pages 211-233, August.
    8. repec:bla:ecorec:v:48:y:1972:i:122:p:266-71 is not listed on IDEAS
    9. J. A. Frenkel & S. Fischer, 1972. "International Capital Movements Along Balanced Growth Paths:Comments and Extensions," The Economic Record, The Economic Society of Australia, vol. 48(2), pages 266-271, June.
    10. Olson, Mancur & Bailey, Martin J, 1981. "Positive Time Preference," Journal of Political Economy, University of Chicago Press, vol. 89(1), pages 1-25, February.
    11. Uzawa, H, 1969. "Time Preference and the Penrose Effect in a Two-Class Model of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 77(4), pages 628-652, Part II, .
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Mirakhor, Abbas, 2010. "Whither Islamic Finance? Risk Sharing in An Age of Crises," MPRA Paper 56341, University Library of Munich, Germany.
    2. Mirakhor, Abbas, 2009. "Islamic Economics and Finance: An Institutional Perspective," MPRA Paper 56017, University Library of Munich, Germany.
    3. Abbas Mirakhor, 2014. "Foundations of risk-sharing finance: an Islamic view," Chapters, in: Mervyn K. Lewis & Mohamed Ariff & Shamsher Mohamad (ed.), Risk and Regulation of Islamic Banking, chapter 6, pages 107-128, Edward Elgar Publishing.
    4. Hossein Askari & Noureddine Krichene & Abbas Mirakhor, 2014. "On the Stability of an Islamic Financial System," PSL Quarterly Review, Economia civile, vol. 67(269), pages 131-167.
    5. Hossein Askari & Abbas Mirakhor, 2014. "Risk sharing, public policy and the contribution of Islamic finance," PSL Quarterly Review, Economia civile, vol. 67(271), pages 345-379.
    6. Al-Jarhi, Mabid Ali M. M., 2016. "An Economic Theory of Islamic Finance Regulation," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 24, pages 1-44.
    7. Hossein Askari, 2015. "Severe Financial Crises and Fundamental Reforms: The Benefits of Risk-Sharing الأزمات المالية الخطيرة والإصلاحات الأساسية: فوائد تقاسم المخاطر," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 28(1), pages 93-128, January.
    8. Mirakhor, Abbas, 2012. "Islamic Finance, Risk Sharing and Macroeconomic Policies," MPRA Paper 56338, University Library of Munich, Germany.
    9. Hossein Askari & Noureddine Krichene, 2014. "Islamic finance: an alternative financial system for stability, equity, and growth," PSL Quarterly Review, Economia civile, vol. 67(268), pages 9-54.
    10. Ul Haque, Nadeem & Mirakhor, Abbas, 1999. "The Design Of Instruments For Government Finance In An Islamic Economy," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 6, pages 27-43.
    11. Mirakhor, Abbas & Krichene, Noureddine, 2009. "The Recent Crisis: Lessons for Islamic Finance," MPRA Paper 56022, University Library of Munich, Germany.
    12. Haque, Nadeem ul & Mirakhor, Abbas, 1999. "The Design of Instruments For Government Finance in An Islamic Economy," MPRA Paper 56028, University Library of Munich, Germany.

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    More about this item

    Keywords

    rate of return; equilibrium;

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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