Munich Personal RePEc Archive

Equilibrium in a Non-Interest Open Economy

Mirakhor, Abbas (1993): Equilibrium in a Non-Interest Open Economy. Published in: Journal of King Abdulaziz University: Islamic Economics , Vol. 5, (1993): pp. 3-23.

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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.

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