nep-cba New Economics Papers
on Central Banking
Issue of 2010‒01‒23
24 papers chosen by
Alexander Mihailov
University of Reading

  1. Negative Nominal Interest Rates: Three ways to overcome the zero lower bound By Willem Buiter
  2. Lessons from the global financial crisis for regulators and supervisors By Willem Buiter
  3. The Great Recession vs. the Great Depression. Stylised Facts on Siblings that Were Given Different Foster Parents By Karl Aiginger
  4. The Crisis: Policy Lessons and Policy Challenges By Agnes Benassy-Quere; Benoit Coeure; Pierre Jacquet; Jean Pisani-Ferry
  5. Real-Time Macroeconomic Monitoring: Real Activity, Inflation, and Interactions By S. Boragan Aruoba; Francis X. Diebold
  6. Central bank independence and conservatism under uncertainty: Substitutes or complements? By Carsten Hefeker; Blandine Zimmer
  7. Policy irreversibility and interest rate smoothing By Kobayashi, Teruyoshi
  8. Speculative Dynamics in the Term Structure of Interest Rates By Kristoffer Nimark
  9. Expectations-Driven Cycles in the Housing Market By Luisa Lambertini; Caterina Mendicino; Maria Teresa Punzi
  10. Monetary Shocks and Central Bank Liquidity with Credit Market Imperfections By Pierre-Richard Agenor; Koray Alper
  11. Sunspots and Credit Frictions By Sharon Harrison; Mark Weder
  12. Stock Market Conditions and Monetary Policy in a DSGE Model for the U.S. By Efrem Castelnuovo; Salvatore Nisticò
  13. Pricing Fixed-Income Securities in an Information-Based Framework By Lane P. Hughston; Andrea Macrina
  14. A Macro-Finance Approach to Exchange Rate Determination By Yu-chin Chen; Kwok Ping Tsang
  15. Markups, production, and income distribution under segmented asset markets By Zeno Enders
  16. The Lag in Effect of Inflation Targeting and Policy Evaluation By WenShwo Fang; Stephen M. Miller
  17. Inflation Targeting and the Crisis: An Empirical Assessment By de Carvalho Filho, Irineu
  18. A quarterly fiscal database for the euro area based on intra-annual fiscal information By Joan Paredes; Diego J. Pedregal; Javier J. Pérez
  19. All is Quiet in the Fiscal Front: Fiscal Policy for the Global Economic Crisis By Matías Vernengo
  20. A Disutility-Based Drift Control for Exchange Rates By Rosella Castellano; Roy Cerqueti; Rita L. D'Ecclesia
  21. Banks and early deposit withdrawals in a new Keynesian framework By Totzek, Alexander
  22. Government borrowing is pointless where a government issues its own currency. By Musgrave, R.S.
  23. Towards a Flexible Exchange Rate Policy in Russia By Roland Beck; Geoff Barnard
  24. Monetary Policy & Monetary Regime in an Interest Free Economy: An Alternate Approach In Monetary Economics amidst Great Recession By Shaikh, Salman

  1. By: Willem Buiter
    Abstract: The paper considers three methods for eliminating the zero lower bound on nominal interest rates and thus for restoring symmetry to domain over which the central bank can vary its policy rate. They are: (1) abolishing currency (which would also be a useful crime-fighting measure); (2) paying negative interest on currency by taxing currency; and (3) decoupling the numéraire from the currency/medium of exchange/means of payment and introducing an exchange rate between the numéraire and the currency which can be set to achieve a forward discount (expected depreciation) of the currency vis-a-vis the numéraire when the nominal interest rate in terms of the numéraire is set at a negative level for monetary policy purposes. 
    Date: 2009–07
  2. By: Willem Buiter
    Abstract: This lecture is a tour d’horizon of the financial crisis aimed at extracting lessons for future financial regulation. It combines normative recommendations based on conventional welfare economics with positive assessments of the kind of measures likely to be adopted based on political economy considerations.
    Date: 2009–07
  3. By: Karl Aiginger (WIFO)
    Abstract: This paper compares the depth of the recent crisis and the Great Depression. We use a new data set to compare the drop in activity in the industrialised countries for seven activity indicators. This is done under the assumption that the recent crisis levelled off in mid-2009 for production and will do so for unemployment in 2010. Our data indicate that the recent crisis indeed had the potential to be another Great Depression, as shown by the speed and simultaneity of the decline in the first nine months. However, if we assume that a large second dip can be avoided, the drop in all indicators overall will have been smaller than during the Great Depression. This holds true specifically for GDP, employment and prices, and least for manufacturing output. The difference in the depth of the crises concurs with differences in policy reaction. This time monetary policy and fiscal policy were applied courageously, speedily and partly internationally coordinated. During the Great Depression for several years fiscal policy tried to stabilise budgets instead of aggregate demand, and either monetary policy was not applied or was rather ineffective insofar as deflation turned lower nominal interest rates into higher real rates. Only future research will be able to prove the exact impact of economic policy, but the current tentative conclusion is that economic policy prevented the recent crisis from developing into a second Great Depression. This is also a partial vindication for economists. The majority of them might not have been able to predict the crisis, but it shows that the science did learn its lesson from the Great Depression and was able to give decent policy advice to at least limit the depth of the recent crisis.
    Date: 2009–12–14
  4. By: Agnes Benassy-Quere; Benoit Coeure; Pierre Jacquet; Jean Pisani-Ferry
    Abstract: We review the competing explanations of the 2007-2008 global crisis, recall how governments around the world had to depart from established policy stances, and reflect on the legacy of the crisis both in terms of future challenges and changes in policy doctrine. The G-20 has addressed important regulatory and macro-financial dimensions of the crisis, but it has left difficult questions unanswered. We review some of these incoming challenges such as moral hazard in the post-bail-out world, the trade-off between financial stability and the cost of capital, the feasibility for central banks to manage their new financial stability mandate, and the effectiveness of peer review to address global imbalances.
    Keywords: Global financial crisis; economic policy; financial regulation; black swan
    JEL: E50 E6 F02 F36 G18 G28
    Date: 2009–11
  5. By: S. Boragan Aruoba (Department of Economics, University of Maryland); Francis X. Diebold (Department of Economics, University of Pennsylvania and NBER)
    Abstract: We sketch a framework for monitoring macroeconomic activity in real-time and push it in new directions. In particular, we focus not only on real activity, which has received most attention to date, but also on inflation and its interaction with real activity. As for the recent recession, we find that (1) it likely ended around July 2009; (2) its most extreme aspects concern a real activity decline that was unusually long but less unusually deep, and an inflation decline that was unusually deep but brief; and (3) its real activity and inflation interactions were strongly positive, consistent with an adverse demand shock.
    Keywords: Nowcasting, Prices, Wages, Business cycle, Expansion, Contraction, Recession, Turning point, State-space model, Dynamic factor model
    JEL: E31 E32 E37 C01 C22
    Date: 2010–01–08
  6. By: Carsten Hefeker (University of Siegen, Hoelderlinstrasse 3, D-57068 Siegen); Blandine Zimmer (LARGE, University of Strasbourg, 47 avenue de la Forêt Noire, F-67082 Strasbourg Cedex)
    Abstract: This paper revisits the trade-off between central bank independence and conservatism using a New Keynesian model with uncertainty about the central banker's output gap target. It is shown that when this uncertainty is high, the trade-off no longer holds. In this case, the optimal combination between independence and conservatism is characterised by complementarity.
    Keywords: Central bank independence, Conservatism, Transparency of monetary policy
    JEL: E52 E58
    Date: 2010
  7. By: Kobayashi, Teruyoshi
    Abstract: Many empirical studies argue that the inertial behavior of the policy rates in industrialized countries can be well explained by a linear partial adjustment version of the Taylor rule. However, the explanatory power of the lagged interest rate has been questioned from various points of view. This paper formally examines a situation in which a central bank has an aversion for frequent policy reversals. Imposing an irreversibility constraint on the control space makes the lagged interest rate a state variable, but the policy function cannot then be expressed as a partial adjustment form even if the original Taylor rule is the correct policy function in the absence of the constraint. The simulation results reveal that the conventional regression tends to falsely support the functionally misspecified partial adjustment model. This implies that the significant role of the lagged interest may simply reflect the central banks’ reversal aversion.
    Keywords: gradualism; interest rate smoothing; irreversibility; Taylor rule.
    JEL: E58 E52
    Date: 2010–01
  8. By: Kristoffer Nimark
    Abstract: If long maturity bonds are traded frequently and traders have non-nested information sets, speculative behavior in the sense of Harrison and Kreps (1978) arises. Using a term structure model displaying such speculative behavior, this paper proposes an empirically plausible re-interpretation of predictable excess returns that is not based on the value traders attach to a marginal increase of wealth in different states of the world. It is demonstrated that (i) dispersion of expectations about future short rates is sucient for individual traders to systematically predict excess returns even in a model with constant risk premia and (ii) the new term structure dynamics driven by speculative trade is orthogonal to public information in real time. The model is estimated using monthly data on US short to medium term Treasuries from 1964 to 2007 and it provides a very good fit of the data. Speculative dynamics are potentially quantitatively important, accounting for a substantial fraction of the variation of bond yields and is more important at long maturities. We also show that a three factor no-arbitrage factor model would find overwhelming but misleading evidence in favor of a time varying risk premia if the world is characterized by the model presented here.
    Keywords: Term structure of interest rates; Speculative dynamics; Excess returns; Nonnested information; Private information.
    Date: 2009–12
  9. By: Luisa Lambertini (Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland); Caterina Mendicino; Maria Teresa Punzi
    Abstract: This paper analyzes housing market boom-bust cycles driven by changes in households' expectations. We introduce expectations-driven fluctuations into the housing-market model developed by Iacoviello and Neri (2009). We find that changes in expectations about the future state of productivity, investment cost, housing supply, inflation, the policy rate and the central bank's inflation target can generate macroeconomic boom-bust cycles in accordance with the data. Contrary to previous literature, we show that a strong anti-inflationary stance is detrimental both in terms of macroeconomic volatility and welfare. We also document that economies subject to a lower degree of credit friction experience higher volatility in both consumption household indebtedness.
    Date: 2010–01
  10. By: Pierre-Richard Agenor; Koray Alper
    Date: 2009
  11. By: Sharon Harrison; Mark Weder
    Abstract: We examine a general equilibrium model with collateral constraints and increasing returns to scale in production. The utility function is nonseparable, with no income effect on the consumer’s choice of leisure. Unlike this model without a collateral constraint, we Þnd that indeterminacy of equilibria is possible. Hence, business cycles can be driven by self-fulÞlling expectations. This is the case for more realistic parametrizations than in previous, similar models without these features.
    Keywords: Business cycles, Credit markets, Collateral Constraint, Sunspots.
    JEL: E32
    Date: 2010–01
  12. By: Efrem Castelnuovo (University of Padua); Salvatore Nisticò (Università di Roma "Tor Vergata" and LUISS "Guido Carli")
    Abstract: This paper investigates the interactions between stock market fluctuations and monetary policy within a DSGE model for the U.S. economy. First, we design a framework in which fluctuations in households financial wealth are allowed - but not necessarily required - to exert an impact on current consumption. This is due to the interaction, in the financial markets, of long-time traders holding wealth accumulated over time with newcomers holding no wealth at all. Importantly, we introduce nominal wage stickiness to induce pro-cyclicality in real dividends. Additional nominal and real frictions are modeled to capture the pervasive macroeconomic persistence of the observables employed to estimate our model. We fit our model to post-WWII U.S. data, and report three main results. First, the data strongly support a significant role of stock prices in affecting real activity and the business cycle. Second, our estimates also identify a significant and counteractive response of the Fed to stock-price fluctuations. Third, we derive from our model a microfounded measure of financial slack, the "stock-price gap", which we then contrast to alternative ones, currently used in empirical studies, to assess the properties of the latter to capture the dynamic and cyclical implications of our DSGE model. The behavior of our "stock-price gap" is consistent with the episodes of stock-market booms and busts occurred in the post-WWII, as reported by independent analyses, and closely correlates with the current financial meltdown. Typically employed proxies of financial slack such as detrended log-indexes or growth rates show limited capabilities of capturing the implications of our model-consistent index of financial stress. Cyclical properties of the model as well as counterfactuals regarding shocks to our measure of financial slackness and monetary policy shocks are also proposed.
    Keywords: Stock Prices, Monetary Policy, Bayesian Estimation, Wealth Effects.
    JEL: E30 E52
    Date: 2010–01
  13. By: Lane P. Hughston (Department of Mathematics, Imperial College); Andrea Macrina (Department of Mathematics, King's College London, Institute of Economic Research, Kyoto University)
    Abstract: In this paper we introduce a class of information-based models for the pricing of fixed-income securities. We consider a set of continuous- time information processes that describe the flow of information about market factors in a monetary economy. The nominal pricing kernel is at any given time assumed to be given by a function of the values of information processes at that time. By use of a change-of-measure technique we derive explicit expressions for the price processes of nom- inal discount bonds, and deduce the associated dynamics of the short rate of interest and the market price of risk. The interest rate positiv- ity condition is expressed as a differential inequality. We proceed to the modelling of the price-level, which at any given time is also taken to be a function of the values of the information processes at that time. A simple model for a stochastic monetary economy is introduced in which the prices of nominal discount bonds and inflation-linked notes can be expressed in terms of aggregate consumption and the liquidity benefit generated by the money supply.
    Keywords: Fixed-income securities, interest rate theory, inflation, inflation-linked securities, non-linear filtering, incomplete information
    Date: 2010–01
  14. By: Yu-chin Chen (University of Washington); Kwok Ping Tsang (Virginia Tech)
    Abstract: The nominal exchange rate is both a macroeconomic variable equilibrating international markets, and a financial asset that embodies expectations and prices risks about cross border currency-holdings. Recognizing this, we adopt a joint macro-finance strategy to model the exchange rate. We incorporate into a monetary exchange rate model macroeconomic stabilization through Taylor-rule monetary policy on one hand, and on the other, market expectations and perceived risks embodied in the cross-country yield curves. Using monthly data between 1985 and 2005 for Canada, Japan, the UK and the US, we summarize information in the relative yield curves between country-pairs using the Nelson and Siegel (1987) latent factors, and combine them with monetary policy targets (output gap and inflation) into a Vector Autoregression (VAR) for bilateral exchange rate changes. We find strong evidence that both the financial and macro variables are important for explaining exchange rate dynamics and excess currency returns, especially for the yen and the pound relative to the dollar. By decomposing the yield curves into expected future yields and bond market term premia, we show that both expectations and perceived risks are priced into the currency market. These findings provide support for the view that the nominal exchange rate is determined by both macroeconomic as well as financial forces.
    Date: 2009–12
  15. By: Zeno Enders
    Abstract: A model of segmented asset markets is developed, in which varieties of consumption bundles are purchased sequentially. By this, a non-degenerate heterogeneity in wealth and the effective elasticity of substitution across households arises, affecting optimal markups chosen by firms. Furthermore, the model features an internal propagation mechanism that stems from the slow dissemination of newly injected money via second-round effects. These mechanisms generate a short-term inflation-output trade-off, a liquidity effect, countercyclical markups, procyclical profits and wages after monetary shocks. Furthermore, the responses of output, inflation, hours worked, velocity, and profits are quantitatively in line with VAR evidence.
    Keywords: Limited Participation, Countercyclical Markups, Liquidity Effect, Segmented Asset Markets
    JEL: E31 E32 E51
    Date: 2009–12
  16. By: WenShwo Fang (Feng Chia University); Stephen M. Miller (University of Connecticut)
    Abstract: The lag in effect of monetary policy contains vital information for the policy evaluation. Allowing for a time-varying treatment effect, we show that inflation targeting effectively lowers inflation for both developed and developing countries. Developed countries reach their targets rapidly with a two-year lag in effect. Developing countries, however, reduce inflation gradually toward their targets and do not reach their ultimate goal by the end year of 2007.
    Keywords: time lag, inflation targeting, time-varying treatment effect, policy evaluation
    JEL: C52 E31 E52
    Date: 2010–01
  17. By: de Carvalho Filho, Irineu
    Abstract: This paper appraises how countries with inflation targeting fared during the current crisis, with the goal of establishing the stylized facts that will guide and motivate future research. We find that relative to other countries, IT countries lowered nominal policy rates by more and this loosening translated into an even larger differential in real interest rates; were less likely to face deflation scares; and saw sharp real depreciations not associated with a greater perception of risk by markets. We also find some weak evidence that IT countries did better on unemployment rates and advanced IT countries have had relatively stronger industrial production performance. Finally, we find that advanced IT countries had higher GDP growth rates than their non-IT peers, but no such difference for emerging countries or the full sample.
    Keywords: Inflation targeting; economic crisis; monetary policy
    JEL: E00
    Date: 2010–01–11
  18. By: Joan Paredes (European Central Bank); Diego J. Pedregal (Universidad de Castilla-La Mancha); Javier J. Pérez (Banco de España)
    Abstract: The analysis of the macroeconomic impact of fiscal policies in the euro area has been traditionally limited by the absence of quarterly fiscal data. To overcome this problem, we provide two new databases in this paper. Firstly, we construct a quarterly database of euro area fiscal variables for the period 1980-2008 for a quite disaggregated set of fiscal variables; secondly, we present a real-time fiscal database for a subset of fiscal variables, composed of bi-annual vintages of data for the euro area period (2000-2009). All models are multivariate, state-space mixed-frequencies models estimated with available national accounts fiscal data (mostly annual) and, more importantly, monthly and quarterly information taken from the cash accounts of the governments. We provide not seasonally and seasonally-adjusted data. Focusing solely on intra-annual fiscal information for interpolation purposes allows us to capture genuine intra-annual "fiscal" dynamics in the data. Thus, we provide fiscal data that avoid some problems likely to appear in studies using fiscal time series interpolated on the basis of general macroeconomic indicators, namely the well-known decoupling of tax collection from the evolution of standard macroeconomic tax bases (revenue windfalls/shortfalls).
    Keywords: Euro area, Fiscal policies, Interpolation, Unobserved Components models, Mixed-frequencies
    JEL: C53 E6 H6
    Date: 2009–12
  19. By: Matías Vernengo
    Abstract: The current economic global crisis has thrown fiscal policy onto the center stage. However, the current crisis episode has not produced any change regarding the standing role and function of fiscal policy in developed and developing market economies that has dominated the economics profession for decades. In fact, the uncertain prospects for recovery underscore the fact that free market economies lack the mechanisms to bring about and maintain full employment. Full employment requires designing and making operational institutions at the national and global levels that can manage aggregate demand. This paper reviews the evidence on current fiscal efforts around the world.
    Keywords: Fiscal Policy, Fiscal Deficit
    JEL: E62 H62
    Date: 2010–01
  20. By: Rosella Castellano (University of Macerata); Roy Cerqueti (University of Macerata); Rita L. D'Ecclesia (University of Rome Sapienza)
    Abstract: <p><font size="2" face="CMR10"><font size="2" face="CMR10"><p align="left">In this paper we propose an exchange rate model as solution of a disutility based drift control problem. Assuming the exchange rate is a function of the fundamental, we suppose that Government Authorities control the fundamental's dynamics aimed at minimizing the</p><p align="left">discounted expected disutility derived by the distance between the fundamental and some specific stochastic target. The theoretical model is solved using the dynamic programming approach and introducing the concept of viscosity solution. We contribute to research on exchange rate control policies by deriving the optimal interventions aimed at stabilizing</p><p align="left">the exchange rate and preserving macroeconomic stability. We also show that, under</p><p align="left">particular conditions, it is possible to derive the optimal width of the currency band.</p></font></font></p>
    Date: 2009–12
  21. By: Totzek, Alexander
    Abstract: When the current financial crisis has widened to a global economic crisis an urgent call for implementing financial markets and financial institutions in business cycle models emerged. By modelling commercial banks as a third type of economic agent, we are able to implement the feature of early deposit withdrawals in a New Keynesian model and to investigate the resulting implications for the real sector. The main results are that an extended withdrawal rate leads to persistent stagflationary effects which are dampened by reducing the refinancing costs of the banking sector and by increasing the loan rate stickiness. --
    Keywords: commercial banks,financial crises,deposit withdrawal
    JEL: E12 E44 E50
    Date: 2009
  22. By: Musgrave, R.S.
    Abstract: The alleged justifications for government borrowing in a country which issues its own currency are examined here. The conclusion is that no justification exists for borrowing money in the normal sense of the phrase “borrow money”: that is, the use by one entity of money loaned by another entity, and so as to fund expenditure by the first entity. In contrast, and where a deflationary stance is required, it is justifiable for government (or as is more usual, the central bank) to borrow in the sense of withdrawing funds from the private sector and purely so as to stop those funds being spent. Moreover, inflation destroys a proportion of the money “borrowed”. Plus government effectively confiscates (via tax) the money needed to pay interest on this “borrowed” money. This is essentially a money shredding operation. This is not the normal meaning of the word borrow. Many of the points made here apply to the central bank of a common currency area. Individual countries within a common currency area are not considered.
    Keywords: Abba Lerner; Modern Monetary Theory; government borrowing
    JEL: E42 E58 H6
    Date: 2010–01–15
  23. By: Roland Beck; Geoff Barnard
    Abstract: In the years preceding the onset of the global financial crisis, the Central Bank of Russia (CBR) had two goals: to reduce inflation and limit the real appreciation of the rouble. Given the strength of Russia’s balance of payments during the ten years through the first half of 2008, the de facto tight management of the nominal exchange rate resulted in large interventions which were only partially sterilised. As a result, inflation remained persistently high. During the global financial crisis in 2008-09 Russia’s monetary policy was initially constrained by a large degree of private debt dollarisation. After a gradual adjustment of the exchange rate to the new oil price environment which was costly due to reserve losses, the CBR started to lower interest rates and to allow for a somewhat higher degree of exchange rate flexibility. Looking ahead, even greater exchange rate flexibility should be permitted since (i) commodity exporting countries can successfully run inflation targeting and (ii) we find that exchange rate pass-through has been limited and asymmetric and can be taken into account under inflation targeting. Preparations for inflation targeting should focus on a commitment to price stability as the primary goal of monetary policy. At the same time the authorities should enhance their understanding of how monetary developments affect inflation and financial stability and accelerate financial sector reforms aimed at financial deepening.<P>Vers une politique de taux de change plus flexible en Russie<BR>Pendant les années précédant le déclenchement de la crise financière mondiale, la banque centrale de Russie avait deux objectifs : réduire l’inflation et limiter l’appréciation réelle du rouble. Étant donné le solde très positif de la balance des paiements pendant la décennie se terminant à la première moitié de 2008, la gestion du taux de change nominal a eu pour résultat des interventions importantes qui n’ont été que partiellement stérilisées. L’inflation est donc restée élevée. Pendant la crise financière mondiale en 2008-09 la politique monétaire de la Russie a été contrainte par le niveau élevé de dollarisation de la dette privée. Après un ajustement graduel du taux de change à la situation nouvelle des prix du pétrole qui a été coûteux à cause des pertes de réserves, la banque centrale a commencé à baisser les taux d’intérêt et à permettre plus de flexibilité du taux de change. Dans le futur, la Russie devrait permettre davantage de flexibilité du taux de change puisque (i) les pays exportateurs de matières premières peuvent gérer un régime de ciblage de l’inflation ; et (ii) nous trouvons que la transmission des mouvements du taux de change à l’inflation n’a été que modérée et asymétrique et qu’on peut en tenir compte sous un tel régime. Les préparations pour le ciblage de l’inflation devraient être focalisées sur un engagement à la stabilité des prix comme objectif principal de la politique monétaire. En même temps, les autorités devraient améliorer leur compréhension de la façon dont les développements monétaires affectent l’inflation et la stabilité financière ainsi qu’accélérer les réformes financières visant un approfondissement du secteur financier.
    Keywords: economy, exchange rate policy, inflation targeting, inflation, interest rate, monetary policy, Russia, ciblage de l’inflation, économie, inflation, politique de taux de change, politique monétaire, Russie, taux de change, taux d'intérêt
    JEL: E31 E5 E52 E58 F31
    Date: 2009–12–18
  24. By: Shaikh, Salman
    Abstract: This paper reviews limited, but precious academic literature on central banking and monetary management in Islamic finance. It discusses the building blocks of an Islamic monetary system. It discusses how savings would feature despite discontinuation of interest, how inflation will be checked with central banks not having at its disposal conventional OMO, how liquidity will be managed in banking sector when central bank wants to inject liquidity or mop up funds. How and to what extent the institution of Zakat would enable the government to meet its fiscal targets and does not crowd out private sector. How balance of payments and exchange rate stability can be managed in an interest free economy. If in the short term, the government or central bank needs alternative source of revenue other than Zakat, they can issue GDP linked bonds. This could replace T-bill and provide a base instrument for OMO and liquidity management in the banking and financial sector.
    Keywords: Islamic corporate finance; pricing of capital; interest free finance; Interest; Interest free economy; Usury; Time value of money; Riba; Musharakah; Mudarabah; Ijara; Salam; Istisna; Qard-e-Hasan; Diminishing Musharakah
    JEL: E42 E52 E60
    Date: 2010–01

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