In his comment on my paper (Staff Papers, Vol. 33, March 1986, pp. 1–27) Doak contends that I used the “wrong” model to characterize the Islamic banking system, and that I should have employed criteria other than dynamic stability to contrast the Islamic and traditional banking systems.

Abstract

In his comment on my paper (Staff Papers, Vol. 33, March 1986, pp. 1–27) Doak contends that I used the “wrong” model to characterize the Islamic banking system, and that I should have employed criteria other than dynamic stability to contrast the Islamic and traditional banking systems.

In his comment on my paper (Staff Papers, Vol. 33, March 1986, pp. 1–27) Doak contends that I used the “wrong” model to characterize the Islamic banking system, and that I should have employed criteria other than dynamic stability to contrast the Islamic and traditional banking systems.

The objective of my paper was clearly stated: to examine the dynamic response of an Islamic bank to a sudden decline in income (fall in asset values). The model specified, which is simply a dynamic version of the standard IS-LM framework, seems perfectly sensible for the purpose at hand. The assumption of only outside money is perhaps unrealistic, but relaxing this assumption to allow banks to issue deposits does not change the analysis in any way. There is only one bank in the system (with no distinction made between the central bank and commercial banks), and it issues a liability. I called that liability money but could easily have called it deposits.

I agree with Doak that my model does not explain the effects of moving to a 100 percent reserve requirement for banks. But the model was not designed to do so. There are a whole host of important issues in Islamic banking and finance other than stability, and, as shown in a recent collection of papers on the subject,1 one needs different models to analyze them. Doak’s criticism of my model—that it is not sufficiently general to be able to handle all the relevant issues, including “questions of a political nature”—is certainly correct. But how many models in economics would be immune to such criticism?

A NEW IMF PUBLICATION Staff Studies for the World Economic Outlook, July 1988

This volume consists of background analyses for the Fund’s April 1988 World Economic Outlook:

I. How Accurate Is the World Economic Outlook? A Post Mortem on Short-Term Forecasting at the International Monetary Fund

M. J. Artis

II. MULTIMOD—A Multi-Region Econometric Model

Paul R. Masson, Steven Symansky, Richard Haas, and Michael Dooley

An important basic reference for scholars and practitioners interested in short- and medium-term forecasting and analysis and in the Fund’s contribution to the field.

Price: US$ 15.00 (US$11.00 to university libraries, faculty members, and students).

Available from: Publication Services Box Mo. E-419

International Monetary Fund 700 19th Street, N.W.

Washington, D.C. 20431, U.S.A. Telephone (202) 623-7430

The World Bank Economic Review

Volume 2

September 1988

Number 3

Agricultural Incentives in Developing Countries: Measuring the Effect of Sectoral and Economywide Policies

Anne O. Krueger, Maurice Schiff, and Alberto Valdes

Inflationary Rigidities and Orthodox Stabilization Policies: Lessons from Latin America

Miguel A. Kiguel and Nissan Liviatan

Nutrients; Impacts and Determinants

Jere R. Behrman, Anil B. Deolalikar, and Barbara L. Wolfe

A Structural Model of Manufactured Exports of Developing Countries

Cristian Moran

Export Quota Allocations, Export Earnings, and Market Diversification

Taeho Bark and Jaime de Melo

Approximating the Effective Protection Coefficient without Reference to Technological Data

Patrick J. Conway and Malcolm Bale

Subscriptions to The World Bank Economic Review for the first two volumes are available without charge upon written request to World Bank Publications, Sales Unit, Washington, D.C. 20433, U.S.A.

Journal of Money, credit, and banking

RECENT DEVELOPMENTS IN MACROECONOMICS

Papers and comments from the conference sponsored by the Federal Reserve Bank of Cleveland, held in October 1987. Mailed to subscribers as a supplement to the August 1988 issue.

CONTENTS

Recent Developments in Macroeconomics: A Very Quick Refresher Course

N. Gregory Mankiw

Comments by: Herbert Stein and Edmund Phelps

Postwar Developments in Business Cycle Theory: A Moderately Classical Perspective

Bennett J. McCallum

Comments by: Lawrence Summers and Peter K. Clark

What Microeconomics Teaches Us about the Dynamic Macro Effects of Fiscal Policy

Laurence J. Kotlikoff

Comments by: William Niskanen and Preston Miller

Some Recent Developments in Labor Economics and Their Implications for Macroeconomics

Lawrence F. Katz

Comments by: Robert Topel and Thomas Kniesner

On the Roles of International Financial Markets and Their Relevance for Economic Policy

Alan C. Stockman

Comments by: Patrick Kehoe and J. David Germany

Financial Structure and Aggregate Economic Activity: An Overview Mark Gertler

Comments by: Marvin Goodfriend and Laurence Weiss

The regular August 1988 issue contains articles by the following authors: Steven R. Beckman, Joshua N. Foreman. Waller Wasserfallen, W. Douglas McMillin, C. Richard Long, Mark L. Gardner. Ali F. Darrat, Paul R. Allen, William J. Wilhelm, and Michael Devercux.

Published quarterly by Ohio State University Press

1050 Carmack Road, Columbus, Ohio 43210-1002 (614) 292-6930

One-Year Subscriptions: $25 Individual $40 Library $19.50 Student

In statistical matter throughout this issue,

dots (…) indicate that data are not available;

a dash (—) indicates that the figure is zero or less than half the final digit shown, or that the item does not exist;

a single dot (.) indicates decimals;

a comma (,) separates thousands and millions:

“billion” means a thousand million, and “trillion” means a thousand billion;

a short dash (–) is used between years or months (for example, 1981–83 or January–October) to indicate a total of the years or months inclusive of the beginning and ending years or months;

a stroke (/) is used between years (for example, 1981/82) to indicate a fiscal year or a crop year;

components of tables may not add to totals shown because of rounding.

*

* Mr. Khan is Assistant Director in the Research Department. He is a graduate of Columbia University and the London School of Economics and Political Science.

1

Khan, Mohsin S., and Abbas Mirakhor, eds., Theoretical Studies in Islamic Banking and Finance (Houston: Institute for Research and Islamic Studies, 1987).