Kiomars Sohaili; Alireza Erfani; Yousef Hayati
Abstract
Exchange rate fluctuations have a major role on business cycles. Due to this degree of importance, this paper analyzed the effects of managed floating exchange rate regime on dynamics of some macroeconomics variables of Iran. To do this, we design a dynamic stochastic general equilibrium (DSGE) model ...
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Exchange rate fluctuations have a major role on business cycles. Due to this degree of importance, this paper analyzed the effects of managed floating exchange rate regime on dynamics of some macroeconomics variables of Iran. To do this, we design a dynamic stochastic general equilibrium (DSGE) model for Iran and then using quarterly data over 1989-2016 and Bayesian method, the structural parameters of the model have been estimated. By employing conditional forecasting, our results show that managed floating exchange rate regime, compared with fixed regime, brings more economic growth and at the same time, less speculative activities in money and exchange markets. Moreover, the results from variance decomposition reveal that exchange rate shocks are the most important shock in deriving business cycles and fluctuations of other variables. Based on these finding, we propose policymaker to choose managed floating exchange rate regime as its policy rule.
Neda Kasaipour; Alireza Erfani
Abstract
The countercyclical monetary policy is a policy that economists recommend to adopt in order to slow down the economic fluctuations. The aim of this study is to address the question that, in the presence of fiscal dominance and considering institutional quality (IQL), what the optimal monetary policy ...
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The countercyclical monetary policy is a policy that economists recommend to adopt in order to slow down the economic fluctuations. The aim of this study is to address the question that, in the presence of fiscal dominance and considering institutional quality (IQL), what the optimal monetary policy should be during the business cycles? To find the appropriate answer, first, in the framework of a Dynamic Stochastic General Equilibrium (DSGE) model, proportional to the structure of the Iranian economy, the parameters of the model are derived. Then, considering fiscal dominance and institutional quality, the optimal monetary policy during the business cycles is calculated and by using the equilibrium parameters, using data of Iran during 1991:2-2016:1, it is calibrated. The results show that the optimal monetary policy during business cycles of Iran is a countercyclical monetary policy. The optimal monetary policy coefficient during the business cycles decreases by a decline in institutional quality and an increase in fiscal dominance. In addition, when the policymaker's goal is only stabilizing inflation, the optimal monetary policy is independent of the business cycles. In addition, when the monetary policy is assumed completely independent, the optimal policy coefficient takes the highest value compared to the other assumed conditions.
