Modelling an Interest Free Economy Through Overlapping Generation Model (OLG)

Document Type : Original Article


1 PhD Candidate in Islamic Economics, Faculty of Economics, Allameh Tabataba’i University

2 Assistant Professor in Economics, Faculty of Economics, Allameh Tabataba’i University


Interest in conventional economic models is a key and regulator factor. However, there are many debates on the rejection or confirmation of monetary interest rate based on its origins. Some of these origins are objective, such as the productivity of capital and the population, and some like the time preference, the liquidity preference, and the convergence of the utility function, are subjective. This study, in considering the critical views of monetary interest rate, offers a model that, while eliminating interest rate, seeks to exploit the benefits of interest economies, such as consumption, savings and accumulation of capital. The intergenerational exchange is shaped in the framework of the overlapping generation model and the population is a positive factor that grows as production grows.  In this model, money is issued only once by government and it is concluded that the continuation of the economy will increase the real value of fixed currency units. The liquidity preference will be eliminated in this model, and as a result there will not be Hording money, and the allocations will be optimal, and this optimality will be permanent.


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