Investment Management and Financial Innovations, Volume 15, Issue 3, 2018

Khawla Dahani (Morocco), Rajae Aboulaich (Morocco)

Dynamic Stochastic
BUSINESS PERSPECTIVES
General Equilibrium Model
for the Islamic Economy
Abstract
This article is concerned with the debate around the economic knowledge evolution
LLC “СPС “Business Perspectives” and the role of ethics in economy. It reports on the 2008 crisis, the research literature
Hryhorii Skovoroda lane, 10, Sumy, reveals two main problems: the efficiency of the economic modeling and the failure of
40022, Ukraine the ethical system.
www.businessperspectives.org 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
Received on: 27th of April, 2018
done by an unconventional approach. The model also distinguishes itself by the inte-
Accepted on: 19th of September, 2018 gration 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.

© Khawla Dahani, Keywords Islamic economy, financial crisis, general equilibrium,

Rajae Aboulaich, 2018 DSGE, monetary policy
JEL Classification C68, E52, G01
Khawla Dahani, Ph.D. Student,
Islamic Finance Engineering
Laboratory, Laboratoire d’Etude et
de Recherche en Mathématiques INTRODUCTION
Appliquées, Mohammadia School
of Engineering, Mohammed V
University, Rabat, Morocco.
Prior to any modeling project, it is worthy to review the economic his-
Rajae Aboulaich, Ph.D., Islamic
tory. Today, while the shadow of the financial crisis did not fade yet,
Finance Engineering Laboratory, while debates are still running over its consequences, it is essential or
Laboratoire d’Etude et de Recherche
en Mathématiques Appliquées,
even obligatory to examine the events and reasons, which lead to this
Mohammadia School of Engineering, crisis. Furthermore, it is necessary to draw possible conclusions and
Mohammed V University, Rabat,
Morocco. lessons.

The financial crisis of 2008 has revealed the main problems of the
economic theory. For the academic and institutional communities,
this crisis represents a source for questionning the existing economic
knowledge, challenging it from the theoretical and ethical perspective.

This financial crisis has put forward two main deep-seated dysfunc-
This is an Open Access article, tions of the current economic system. On the one hand, we have the
distributed under the terms of the
Creative Commons Attribution-Non- collapse of the ethical values system and, on the other hand, the dys-
Commercial 4.0 International license,
which permits re-use, distribution,
function of the existing financial institutions and instruments. The
and reproduction, provided the crisis turned out to be a crisis of economic knowledge, urging acade-
materials aren’t used for commercial
purposes and the original work is micians to revisit the theoretical knowledge and to review the existing
properly cited. models (Gertler & Karadi, 2011).

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 Investment Management and Financial Innovations, Volume 15, Issue 3, 2018

Following Siddiqi (2009), “All the technical flaws and tactical mistakes leading us to the current
crisis are rooted in a moral failure” (p. 149), he also argues that “Islamic civilization has the in-
struments to pre-commit man in society to certain values leading to rules, for example, abolition
of interest (riba) and gambling (maysir), that guard the society from falling prey to short sighted
predators” (p. 144), equity, transparency, profits and losses sharing … are all principles that build
Islamics ethical value system.

On the other hand, the economic knowledge evolution reporting on criticism, improvements and revo-
lutions that followed the crisis, incited the economists to develop their models, we will focus on DSGE
models, as they are used in the main central banks throughout the world (Wabenga Yango et al., 2012).

In addition to studying the crisis from the ethical and theoretical perspective, this paper aims to re-
spond to the problem of the use of an adapted monetary policy to the Islamic economics.

Morocco as many other countries has established mixed system combining aspect of conventional and
Islamic banking practices, this would create a difference in the choice of monetary policy between partici-
pative and conventional banks. Interest rate, which is prohibited in Islamic economics and then not used by
participative banks, is considered as the key instrument for executing monetary policy for conventional ones.

The question we are asking here is to know if the introduction of the conditions imposed by the Islamic
economic system will have negative effects on the Moroccan economy? Does the use of the Islamic prin-
ciples in an economy as Morocco make it possible to maintain macroeconomic achievements and to
preserve the balance of the Moroccan economy?

In this paper, we will propose the use of policies called “unconventional”, which will allow us to design
a model more in compliance with the Islamic economics system.

The monetary authorities sometimes recourse to these policies during the period of crisis to stimulate
the economy without having to use the key interest rate (which is reduced to zero). These measures
consist in the financing by the central bank through the purchase of government bonds, which allows
to finance more investments plans, to stimulate the credit and to guarantee financing of the economy
while reducing risk aversion.

The paper also intends to explore the possibilty of integrating the Zakat to the model.

The rest of the paper is organized as follows: section 1 will provide an overview of the study of the 2008
crisis from the ethical and theoretical perspective, section 2 will present a literature review of the use of
DSGE model in the Islamic economics framework, section 3 will describe the model proposed and the
last two sections will present the empirical results and the conclusion.

1. LITERATURE REVIEW: lead to the risk of losing the meaning of one’s life
and to failure.
THE STUDY OF THE 2008
CRISIS Ethics is not only a moral code that guides different
aspects of life, it is further fundamental to main-
1.1. The ethical crisis: choice tain any system (economic, financial, political and
of a value system social). With regard to any aspect of life, especially
in economy, there must be a value system that has
Lecerf et al. (1991) support that any ethical incon- to be respected to ensure balance. Leaders and fi-
sistency in the different aspects of men’s life will nancial markets, participants should all refer to

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a value system, which helps to establish financial public interests, equity, transparency and sincer-
discipline and stability of the system (Brack & ity. Therefore, it represents a more stable ethical
Saidane, 2010; Hasan & Dridi, 2010). value system.

The 2008 crisis has revealed a major dysfunction Islamic banks have been more resilient to the glob-
and failure of the present financial system. In par- al financial crisis. They have been able to avoid its
allel to the dysfunction of the financial instru- consequences due to their ethical policy and to the
ments, it also revealed an important ethical fail- ethical principles on which they rely:
ure related to the present economic system. Some
scholars have even referred to the collapse of the Islamic finance imposes the respect of several fun-
ethical values system. damental principles of Islam; we will present here
the main principles: profits and losses sharing, as-
It has been reported that this crisis was caused set backing, absence of interest and usury, absence
by the lack of appropriate regulations and trans- of “gambling” and “ambiguity”, absence of invest-
parency (Cecchetti, 2009), the potential con- ment in “Haram” activities.
flicts of interests between different credit rating
agencies and banks, unethical risk management 1.2. The economical knowledge
practices and high speculation (Ben Daoud, crisis: choice of a theoretical
2012). In order to raise profits, the financial
market participants have used different unethi-
framework
cal practices, like the selling of high risk prod- The groundbreaking work of Keynes “The General
ucts, the use of complex and opaque financial Theory of Employment, Interest and Money” was
structures, the massive use of the securitization published in 1936, a few years after the economic
of complex products, the communication of in- crisis of 1930. This crisis pointed out the weakness
accurate information to the client, the lack of of the economic theory at that time, which suf-
professionalism. fered the lack of adequate tools necessary to un-
derstand the present reality.
These practices affected the stability of the finan-
cial system, leading to a lack of trust that para- Keynes’ book was the necessary inspiration for
lyzed the whole system. Thus, transparency and the development of quantitative macroeconomic
stability of the system have become, now more models by Hicks (1937), Tinbergen (1940), Klein
than ever, vital. (De Vroey & Malgrange, 2012), the Philips curve
(Phillips, 1958) achieved in 1958.
Certain economists have noticed that the financial
institutions regulated by an ethical value system These so-called Keynesian models succeeded to
were less impacted by the crisis. be imposed until the late 70’s, but they were large-
ly criticized, especially after the failure of the ef-
Joseph Stiglitz (Nations Unies, 2009) referred to ficient prediction of the economic phenomena
the Islamic finance as an example, Saymeh and witnessed in 1970 (Friedman, 1968; Barro, 1971;
Orieqat (2013), in their article “The Global finan- Sargent & Wallace, 1975; Lucas, 1975; Kydland &
cial Crisis: Is Islamic System a Potential Solution?”, Prescott, 1982).
made a list of academicians, economists, and poli-
cymakers who argue that there is another sys- An alternative approach was developed in the late
tem, more sustainable and efficient, which is the 70’s leading to a new macroeconomic regulation.
Islamic one. Islamic banks were largely spared
from the crisis, even though they had suffered a The first models of paradigm shift were the so-
slowdown in the overall economic activity (Ben called “real business cycle” (RBC) proposed by
Daoud, 2012). Kydland and Prescot (1982), Long and Plosser
(1983), and King, Plosser, and Rebelo (1988). These
In fact, Islamic finance promotes an ethical value inter-temporal models of general equilibrium
system built on a balance between personal and were adjusted to macroeconomic data taking ben-

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efit from the microeconomic theory. They are able the US Federal Reserve uses the EDO (Estimated
to reproduce a considerable number of stylized Dynamic Optimization) model (Kiley et al., 2010),
major facts of the economic cycle…but they fail to the Sveriges Riksbanks (Sweden’s central bank) uses
demonstrate others (Laffargue, 2012). the RAMESES model (Adolfson, 2011), the Reserve
Bank of New Zealand uses the KITT (Kiwi Inflation
Economists criticized the fact that these models Targeting Technology) model (Lees, 2009).
have neglected monetary policy. Their approach
totally ignored the relevance of money in the eco- In the following, we will present an Islamic DSGE
nomic system (Lucas, 1976). model introduced by Khan (1984), Rasoulinzhad
(2012), and others.
In the early 90’s, Keynesian economists pro-
posed a new model, Dynamic Stochastic General 1.3. The new DSGE models
Equilibrium (DSGE), which has given back its im- in the framework of the Islamic
portance to the stabilizing functions of the mon-
etary and budget policies.
economy
In the following, we will present the concept of
The economic crisis, which started in 2008, re- “Dynamic Stochastic General Equilibrium” model
vived debate on economic system failure in gen- within the Islamic economy. This model combines
eral and macroeconomic knowledge in particular. the DSGE modeling method with Islamic econo-
It brought about questioning over the DSGE mod- my principles and values.
el efficiency and capacity to report and anticipate
macroeconomic fluctuations. Some researchers initiated this research path in
the framework of many DSGE models, others
For many economists, interaction channels be- tried to elaborate an important part of the input
tween the financial sphere and real sphere within of which could complete the DSGE model, for ex-
these models need to be consolidated. ample, Khan (1984) developed a macroeconomic
consumption function. His paper “Macro con-
According to Dubois (2010), the crisis we are cur- sumption in an Islamic framework” examines the
rently experiencing has revealed the shortage of consumer behavior and the allocation of resourc-
our knowledge as concerns the relation between es within the Islamic economy, thus, he creates a
the real sphere and financial sphere and how im- macroeconomic model to illustrate his idea.
portant it is to learn more.
Taghavi and Safarzadeh (2009) applied a new
This crisis has invited economists to re-assess the Keynesian DSGE model in the economy of Iran
financial sector modeling in the DSGE models. It to calculate money’s optimal growth rate. Feizi
comes to propose a real modeling of the financial (2009) builds a new Keynesian DSGE model in an
intermediation and its macroeconomic impact. This open economy in the framework of the Islamic
has led many economists to consider DSGE models economy. While studying the Iranian case, he ap-
known as financial accelerator models (Bernake et proximated the interest rate by the exchange rate.
al., 1996; Kiyotaki & Moore, 1997), and others. Zangeneh (1995) formulated an interest free eco-
nomic system in terms of neoclassical macroeco-
These “general equilibrium models” focus on ampli- nomic model, when the interest rate is replaced by
fications effects, related to financial friction. a rate of return on equity. Rasoulinezhad (2012)
realizes a DSGE Islamic structure by using the
The crisis has incited economists to reexamine the Interpretative Structural Modeling (ISM) method.
coverage of the financial system within their models.
This has led, today, to a worldwide use of the DSGE In the next subsection, we propose a DSGE model
models. We can mention: the European Central with financial frictions in a closed economy. Our
Bank uses the model of Smets and Wouters (2003), contribution would be a new thinking on agent’s
the Bank of Canada uses the ToTEM (Terms of Trade behavior to conform to the chosen value system,
Economic Model) (Murchison & Rennison, 2006), which is the Islamic economic system.

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1.4. Presentation While being based on the functions of behaviors

of the proposed I-DSGE model in the case of the conventional economy, our ob-
jective is to define adequate functions of behaviors,
We will focus on the three basic hypotheses con- adapted to the case of the Islamic economy.
stituting the major contribution of this article,
namely: The model that we will present below is inspired
by the work of Gertler and Karadi (2011), five eco-
• the absence of the interest rate: the chosen sys- nomic agents compose it: households, financial in-
tem is Islamic, interest rate is not used and is termediaries, central bank, firms and government,
replaced by rate of return; for more details about the functions please refer to
Gertler and Karadi (2011).
• the second hypothesis concerns the monetary
policy: we suppose the use of a monetary pol- 1.5. Households
icy that does not apply interest rates, the cen-
tral bank uses an unconventional monetary The households are presented through a represen-
policy; it has a direct effect on the balance tative household who consumes, saves, invests in
sheet of commercial banks through injection government bonds, supplies labor, pays its taxes,
of money; but also pays the Zakat.

• the third issue is about the consideration of The household thus maximizes its following objec-
the Zakat within the model: the decision mak- tive function; let us note that is Ct Consumption,
ers in this model are economic agents; the Lt is Labor supply, Et the operator of conditional
idea is to include the Islamic variables in every expectation to information available in t :
agent’s behavior.
 ℵ 1+ϕ 
max Et ∑ i =0 β i ln ( Ct +i − hCt +i −1 ) −
∞
The relation between the various agents is present- Lt +1  , (1)
ed in Figure 1.  1+ ϕ 

Government
Central bank

Withdrawing + financing
Financial intermediaries Households
Deposits
Taxes (+ Zakat)

Firms

Figure 1. Structure of I-DSGE model and relation between the agents

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where 0 < β < 1, 0 < h < 1 and ϕ , ℵ > 0, The future income generated by the bank is the dif-
Gertler and Karadi (2011) consider β as a fac- ference between the returns generated through
tor of discount, in our case, this factor will be es- credit operations and returns paid to depositors.
timated by the rate of return, h is consumption ( )
The premium Rtk+1 − Rt +1 describes the possi-
patterns; ℵ is a constant that allows to adjust the bility of the existence of asymmetric information
number of hours worked with the stationary state between depositors and non-financial firms and it
and ϕ is the elasticity of the labor demand. reflects the opportunity cost due to the use of ex-
ternal financing (Bernanke et al., 1996).
The incomes of households result from their work,
rates of return on the deposits in banks and divi- The future income of the bank can be written ac-
dends resulting from various financial and non- cording to the leverage effect and the risk premium:
financial firms.
( )
N t +1 =  Rtk+1 − Rt +1 θt + Rt +1  N t , (7)
Let Wt be the price of labor (or real wage), Pt –
the net payouts to the household from ownership N
of both financial and non-financial firms, Rt – the (
zt = t +1 =Rtk+1 − Rt +1 θt + Rt +1 , (8)
Nt
)
rate of return on the deposits, Bt – the amount of
the deposits and let Tt be the lump sum taxes. Qt +1St +1 θt +1 N t +1 θt +1
= xt = = zt , (9)
Then, the household budget constraint is calculat- Q t S t θ t N t θ t

ed as follows where
N t +1
C=
t Wt L t + Pt − Tt + R t Bt − Bt +1. (2) zt = , (10)
Nt
1.6. Financial intermediaries (banks)
and where θt is the leverage ratio of the banks,
We assume that the financial intermediaries do which represents the relation between the assets
not use interest rates; in fact, Islamic banks use and the funds held by the bank.
participative financing contracts based on the use
of the rate of return. 1.7. The central bank
We consider that the net worth that the bank has We suppose that the monetary authorities use un-
at the end of period t is N t , customer deposits conventional measures; they facilitate the granting
(main resource banks) are noted Bt and the quan- of the credits by occurring directly on the market
tity and price of bank assets are St and Qt , re- of the credits.
spectively, then:
Indeed, the central bank finances a part of the as-
Qt S=
t N t + Bzt . (3)
sets of banks, not to substitute for them, but to
We consider in this work that the amount of the guarantee financing of the economy, to reduce the
Zakat is subtracted from the customer deposits, aversion to the risk and to stimulate the credit.
which represent their saving.
By using these purchasing strategies of govern-
The amount of Zakat is noted Zat . ment bonds, the central bank feeds the finan-
cial intermediaries of additional liquidity, which
Bzt= Bt − Zat , (4)
should inevitably increase their asset. These bonds
can then be bought by the households and pro-
Zat = 0.025 Bt , (5) duce liquidity to finance investment plan.

N t +1 = Rtk+1Qt St − Rt +1 Bzt = Within this framework, let us suppose that the

(6)
= (R k
t +1 )
− Rt +1 Qt St + Rt +1 N t . fraction of the active total financed by the central
(
bank is Q t Sgt . )

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For that purpose, the total asset at the disposal of The prices of the production of intermediate goods
the financial intermediaries will be of the follow- Pmt are equal to:
ing shape:
Y
Pmt (1 − α ) t =wt . (15)
Q= S Q S + Q S . (11) Lt
t t t pt t gt

Then, Thus, the profitability of the firm is equal to:

Q=
t St θt N t + ωt Qt St , (12)
 Yt 
where ω is the parameter of the scale of the credit  Pmtα K + Qt − U t  Λ t
Λt
policy of the central bank. Rkt =   . (16)
Qt −1
In the end, the total asset banking is according to The activity of the producers of capital is articu-
three parameters: the income resulting from pri- lated around provisioning the intermediate firms
vate activities or the banking equities, the ratio of capital to conclude their exploitation.
of leverage and the part of assets financed by the
government. It is supposed that the stock of the investments is
I , I ss is the potential investment and I n is the
1.8. Firms equity net created, where I nt = I t − U t Λ t K t , in
this case, the objective function of maximizing
In this part of the model, we consider the produc- the capital of the producer is in the following form:
tion and investment side; the sector of the firms is
composed by three types of firms distinguishing max E βΛ (Q − 1) I − f  I nt + I ss   ( I + I ). (17)
∞

∑ t t nt nt ss
the three types of producer on the market: pro- t:1   I nt −1 + I ss  
ducer of intermediate goods, producer of capital
and producer of final goods. Concerning the third firm of details f , it oper-
ates on a market of monopolistic competition in
Competitive non-financial firms produce interme- order to take account of rigidities on the prices.
diate goods that are eventually sold to retail firms,
at the end of the period t , the intermediate goods The production is defined according to the global
producer acquires capital K t after production in production of the various firms
t , he has the option of selling the capital on the −ε
open market.  Pft 
Y ft =   Yt , (18)
 Pt 
The firms are financed with banks, we suppose that
all the flows of banks are only used to finance the and
projects of investments, and that the bank finances 1
all the loans of the firms. The value of the capital of 1  1−ε
the firms should be equal to the assets of the banks. Pt =  ∫ Pft1−ε df  , (19)
0 
Qt K t = Qt St . (13) where ε is the elasticity of substitution.

At each time t , the firm produces (Yt ) on the ba- The firm maximizes the following function:
sis of two factors of production, capital K t and la- (1 + π
t + k −1 ) .
γp

bor Lt :
∞
 P* i 
max Et ∑ γ i β i Λ t  t ∏ (1 + π t + k −1 ) p − Pmt +i  Y ft , (20)
γ
Yt At (U t Λ t K t ) L , (14)
α 1−α
= t i:0 P
 t +1 k =1 

where At is total factor productivity, U t is rate of where γ ∞ is the elasticity of rigidities of the prices,
use of capital and Λ t , K t are the effective quan- Pt * is the optimal price, Pm is the marginal cost
tity of the capital. and π is the inflation rate.

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1.9. The government A shock provides dynamics to the model, it is rep-

resented by the change in the values of the param-
The aggregate output of the economy is made up eters, which disturbs the situation of equilibrium,
of consumption C , the investment I , the budget and then begins a dynamics of transition to a new
expenditure G and the intervention of the gov- model, based on the changes made by the agent on
ernment in favor of the financial intermediary. their behavior. The impulse supplied by the shocks
propagates through the internal mechanisms of
Government spending and their intervention on the model; we have to obtain after a while a return
assets of the banks are financed by the taxes and of the system to the equilibrium.
the spreads over the intermediation of the govern-
ment through the emissions of the bonds and the By simulating the shocks, we are trying to capture
Zakat. the dynamic responses of key macroeconomic
variables to shocks originating in different sector.
G + ωt Qt K t =T + ( Rkt − Rt ) Bgt + Zat , (21) We choose to illustrate here the results of simu-
lation of two shocks. Figure 2 and Figure 3 show
=Zat 0.025 ⋅ Bt . (22) the response of the model to a technological shock
and a fiscal shock, respectively. Each response
is expressed as a deviation of a variable from its
2. NUMERICAL RESULTS steady state.

The parameters was calibrated based on Moroccan The technological shock will allow us to test the
data on the basis of previous studies and by using assumption of the increase of the productivity fur-
the databases of the HCP relating to the year 2016. ther to the integration of a new technology. The
The calibration of the parameters is carried out in graphs present the functions of answers of several
a standard way (Abouch & Firano, 2014). variables of the model to an innovation of 1 point
of the technology compared to its level in the sta-
The question we are asking here is to know if the tionary state.
introduction of the conditions imposed by the
Islamic economic system will have negative ef- The model reacts actually to the shock: the inte-
fects on the Moroccan economy. Does the use of gration of a new technology increases the level of
the Islamic principles in an economy as Morocco productivity and thus increases the risk premi-
make it possible to maintain macroeconomic um, this reaction reflects the apprehension of the
achievements and to preserve the balance of the agents relative to a new technology, this involves
Moroccan economy? the decline of the inflation, which reduces the
wealth.
To answer these questions, we will begin with sev-
eral experiments designed to illustrate how the We tried to get the reactions of the system in the
model behaves, first, we will be interested in the case of a positive fiscal shock by increasing gov-
reaction of our model to some disturbance and in ernment spending. It is noted that while increas-
a second step, we will test the relevance and the ing government spending, the households, antici-
stability of the macroeconomic framework by ex- pating an increase of taxes, are voluntarily going
amining the volatility of the main macroeconomic to restrict their spending (through a reduction
variables and their autocorrelation. of the consumption or an increase of the saving),
which involve a positive wealth effect of the house-
2.1. Reaction of the model to shocks holds and a fall of the inflation and thus a drop in
growth.
We will simulate various shocks, which are going
to allow us to describe through the simulations We notice that the effect of the shocks is relatively
the effects of the economic changes, and to ex- expected and in conformity with the traditional
plain the evolution of the various variables in case results in the literature. The various economic
of a shock. variables turn over in their state of equilibrium

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PREM inflation
0,008
0,006
0,006 0,005
0,004
0,004 0,003
0,002
0,002 0,001
0
0 -0,001
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39
-0,002 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39

Rate of return Investment

0,01 0,1
0,008 0
0,006 -0,1
0,004 -0,2
0,002 -0,3
0 -0,4
-0,002 -0,5
1 3 5 7 9 111315171921232527293133353739 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39

Welfare Consumption

0 0
-0,5 -0,01
-1 -0,02
-0,03
-1,5
-0,04
-2 -0,05
-2,5 -0,06
-3 -0,07
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39

Figure 2. Functions of response of the economic activity to a positive technological shock in the
Islamic framework
Risk premium Inflation
0,0002 0

0 -0,0005

-0,0002
-0,001
-0,0004
-0,0015
-0,0006
-0,002
-0,0008 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 1 3 5 7 9 111315171921232527293133353739

Rate of retun Output

0 0

-0,01
-0,0005
-0,02
-0,001
-0,03

-0,0015 -0,04
1 3 5 7 9 111315171921232527293133353739 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39

Investment Welfare
0,015 0,8

0,01
0,6
0,005
0,4
0
0,2
-0,005

-0,01 0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39

Figure 3. Functions of response of the economic activity to a positive tax shock

in the Islamic framework

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 Investment Management and Financial Innovations, Volume 15, Issue 3, 2018

0,8
0,6
0,4
0,2
0
y infl Q I C R

Figure 4. Volatility of the main macroeconomic variables of the model

0,5

0
y infl Q I C R

Figure 5. Autocorrelation of the main macroeconomic variable of the model

and manage to blur the effect of the shock, which The analysis of the volatility allows us to con-
represents a big factor for the stability of the firm the relevance of integrating the principles
model. of Islamic economy because of the preserva-
tion of the stability of the macroeconomic frame.
Following the various shocks carried out, we Therefore, the use of Islamic principles in an econ-
found judicious to analyze the volatility of the omy as Morocco allows to maintain the macroeco-
main macroeconomic variables and their autocor- nomic achievements and to protect the balance of
relation in order to be able to conclude about the the Moroccan economy.
relevance and the stability of the macroeconomic
framework. Although volatility allows us to confirm the stabil-
ity of the macroeconomic framework, the analysis
2.2. Test of volatility of the autocorrelations is able to confirm the in-
and autocorrelation trinsic behavior of the key economic variables.

The key macroeconomic variables (y: output, infl: The study indicates that the main variables, out-
inflation, Q: assets price, I: investment, C: con- put, inflation, assets price, investment, consump-
sumption, R: rate of return) are characterized by tion, rate of return, preserve their statistical char-
a low volatility, which does not exceed 1 for the acteristics in terms of short-term memory, which
output and very low levels for the other analyzed enables us to clearly confirm the relevance of the
variables. model with Islamic principles.

CONCLUSION
Recent disruptions in the economic system and major developments in economic modeling have
prompted researchers to pave the way for Islamic economic theory. In this work, we proposed to as-
sociate a framework of stochastic dynamic of general equilibrium model with the framework of the
Islamic economy used for the Moroccan case. The synthesis of these two approaches enabled us to test
the eventuality, in the case of Morocco, of rocking towards an economic system suiting better with the
principles of the Islamic economy.

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Investment Management and Financial Innovations, Volume 15, Issue 3, 2018

The characteristic of this model lies in its consideration of unconventional monetary policy not using
interest rate and of its integration of the payment of Zakat, the use of these characteristics can respond
to the problem of the use of adapted monetary policy in the case of mixed system combining aspect of
conventional and Islamic banking practices, which is the case of Morocco.

Using the DSGE model, we were able to highlight the effects of the various shocks on the economy, the
results were expected and in conformity of the traditional results in the literature, we were able to con-
firm the relevance to integrate the Islamic way of financing because of the preservation of the stability
of the macroeconomic framework.

In spite of the promising results of this work, it remains much to make on the subject, at the same time,
not only to confirm the validity of the results obtained, but also to extend the results towards wider or
more corresponding frame. A primary goal would be to improve the DSGE model to suit better with
Moroccan case through the integration of new variables, constraints and agents (religious constraint on
consumption, a conventional bank in addition to the Islamic bank and thus to reinstate interest rate….).
A second objective would be to exceed the limits of DSGE modeling and to exploit a new framework
of modeling able to translate in a more effective way the behavior of the agents (multi-agent modeling).

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