Islamic Theoretical Intertemporal Model of the Current Account
This paper aims to develop an Islamic intertemporal model of the current account based on the prevailing theoretical and empirical literature of PVMCA (Obstfeld and Rogoff, 1996, Cerrato et al., 2014). The proposed model is based on the budget constraint of the present and future consumption, which...
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| Format: | Article |
| Language: | English |
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Business School, Holy Spirit University of Kaslik (USEK)
2016-06-01
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| Series: | Arab Economic and Business Journal |
| Subjects: | |
| Online Access: | http://www.sciencedirect.com/science/article/pii/S2214462515300840 |
| _version_ | 1797228396903661568 |
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| author | Hassan Belkacem Ghassan Essam Hashim Al-Jeefri |
| author_facet | Hassan Belkacem Ghassan Essam Hashim Al-Jeefri |
| author_sort | Hassan Belkacem Ghassan |
| collection | DOAJ |
| description | This paper aims to develop an Islamic intertemporal model of the current account based on the prevailing theoretical and empirical literature of PVMCA (Obstfeld and Rogoff, 1996, Cerrato et al., 2014). The proposed model is based on the budget constraint of the present and future consumption, which depends on the obligatory Zakat from the income and assets, the return rate on the owned assets, the inheritance linking previous to subsequent generation. Using logarithmic utility function, featured by a unitary elasticity of intertemporal substitution and a unitary coefficient of relative risk aversion, we show through Euler equation of consumption that there is an inverse relationship between consumption growth from the last age to the first one and the Zakat rate on assets. The outcomes of this result are that the Zakat on assets disciplines the consumer to have more rationality in consumption, and allows additional marginal assets for future generations. By assuming a unitary subjective discount rate, we indicate that the more the return rate on assets is high, the more the consumption growth between today and tomorrow will be fast. Through the budget constraint, if Zakat rate on the Zakatable assets is greater than Zakat rate on income, this leads to a relative expansion in private consumption of the wealthy group. Besides, we point out that an increase in return rate on assets, can drive to increasing or decreasing current consumption, because the substitution and income effects work in opposite ways. |
| first_indexed | 2024-04-24T14:56:02Z |
| format | Article |
| id | doaj.art-d0b8881585204dae927fce93f3701f22 |
| institution | Directory Open Access Journal |
| issn | 2214-4625 |
| language | English |
| last_indexed | 2024-04-24T14:56:02Z |
| publishDate | 2016-06-01 |
| publisher | Business School, Holy Spirit University of Kaslik (USEK) |
| record_format | Article |
| series | Arab Economic and Business Journal |
| spelling | doaj.art-d0b8881585204dae927fce93f3701f222024-04-02T18:49:27ZengBusiness School, Holy Spirit University of Kaslik (USEK)Arab Economic and Business Journal2214-46252016-06-01111869210.1016/j.aebj.2016.03.002Islamic Theoretical Intertemporal Model of the Current AccountHassan Belkacem Ghassan0Essam Hashim Al-Jeefri1Umm Al-Qura University, College of Economics and Islamic Finance, Department of Economics, P.O. Box 14266 Makkah 21955 KSAUmm Al-Qura University, College of Economics and Islamic Finance, Dept. of Economics, Al-Abidia, Makkah 24382 KSAThis paper aims to develop an Islamic intertemporal model of the current account based on the prevailing theoretical and empirical literature of PVMCA (Obstfeld and Rogoff, 1996, Cerrato et al., 2014). The proposed model is based on the budget constraint of the present and future consumption, which depends on the obligatory Zakat from the income and assets, the return rate on the owned assets, the inheritance linking previous to subsequent generation. Using logarithmic utility function, featured by a unitary elasticity of intertemporal substitution and a unitary coefficient of relative risk aversion, we show through Euler equation of consumption that there is an inverse relationship between consumption growth from the last age to the first one and the Zakat rate on assets. The outcomes of this result are that the Zakat on assets disciplines the consumer to have more rationality in consumption, and allows additional marginal assets for future generations. By assuming a unitary subjective discount rate, we indicate that the more the return rate on assets is high, the more the consumption growth between today and tomorrow will be fast. Through the budget constraint, if Zakat rate on the Zakatable assets is greater than Zakat rate on income, this leads to a relative expansion in private consumption of the wealthy group. Besides, we point out that an increase in return rate on assets, can drive to increasing or decreasing current consumption, because the substitution and income effects work in opposite ways.http://www.sciencedirect.com/science/article/pii/S2214462515300840Current account, Intertemporal, Islamic Model, Smoothed Consumption, Zakat, Utility |
| spellingShingle | Hassan Belkacem Ghassan Essam Hashim Al-Jeefri Islamic Theoretical Intertemporal Model of the Current Account Arab Economic and Business Journal Current account, Intertemporal, Islamic Model, Smoothed Consumption, Zakat, Utility |
| title | Islamic Theoretical Intertemporal Model of the Current Account |
| title_full | Islamic Theoretical Intertemporal Model of the Current Account |
| title_fullStr | Islamic Theoretical Intertemporal Model of the Current Account |
| title_full_unstemmed | Islamic Theoretical Intertemporal Model of the Current Account |
| title_short | Islamic Theoretical Intertemporal Model of the Current Account |
| title_sort | islamic theoretical intertemporal model of the current account |
| topic | Current account, Intertemporal, Islamic Model, Smoothed Consumption, Zakat, Utility |
| url | http://www.sciencedirect.com/science/article/pii/S2214462515300840 |
| work_keys_str_mv | AT hassanbelkacemghassan islamictheoreticalintertemporalmodelofthecurrentaccount AT essamhashimaljeefri islamictheoreticalintertemporalmodelofthecurrentaccount |