Monetary stability and interest-free banking: the case of Iran

Abstract

Previous research has suggested that Islamic banking systems may be more stable than Western systems. However, this contention has only been tested empirically for the case of Tunisia, a country with no significant history of Islamic banking. This paper replicates the study done on Tunisia for the case of Iran, a country with some history of Islamic banking. The results are mixed, with some evidence both for and against the hypothesis of greater stability for Islamic banking. It is suggested that a good deal more work must be done to prove claims about the relative stability of Islamic banking.