Dynamic Stochastic General Equilibrium model for the Islamic economy

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This article is concerned with the debate around the economic knowledge evolution and the role of ethics in economy. It reports on the 2008 crisis, the research literature reveals two main problems: the efficiency of the economic modeling and the failure of the ethical system.
The authors explore the use of the new Dynamic Stochastic General Equilibrium “DSGE” model in the case of Islamic economy, it can enable to develop a new approach, taking into account the criticism of the models used before the crisis, and giving more importance to the ethical principles.
The question is to know if the principles of Islamic economy feed into a sustainable economic system.
The characteristic of this model lies in the consideration of Islamic principles, namely the abolition of interest rates and their replacement by the rate of return of the capital. In this perspective, it is supposed that the intervention of the monetary authorities is done by an unconventional approach. The model also distinguishes itself by the integration of Zakat. The model is applied in the case of Morocco.
The results of simulations show that the introduction of these Islamic principles has no negative effects on the macroeconomic and financial conditions of Morocco and that the stability of the economic system is maintained.

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    • Figure 1. Structure of I-DSGE model and relation between the agents
    • Figure 2. Functions of response of the economic activity to a positive technological shock in the Islamic framework
    • Figure 3. Functions of response of the economic activity to a positive tax shock in the Islamic framework
    • Figure 4. Volatility of the main macroeconomic variables of the model
    • Figure 5. Autocorrelation of the main macroeconomic variable of the model