Monetary economics
Abdulhamid Khosravi; Hossein Marzban; Jaafar Ghaderi; Parviz Rostamzadeh
Abstract
In this study, we design a structural macro model for Iran economy in which there is a dual exchange rate regime, namely, official (fixed) and unofficial (floated) rates. The official rate determined by the central bank whereas unofficial rate set in the free market. The structural parameters of the ...
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In this study, we design a structural macro model for Iran economy in which there is a dual exchange rate regime, namely, official (fixed) and unofficial (floated) rates. The official rate determined by the central bank whereas unofficial rate set in the free market. The structural parameters of the designed model is estimated using quarterly data in the 1991- 2019 period, and Bayesian method. The main finding of this paper is that establishing a dual exchange rate regime cannot prevent the negative effects of exchange rate dynamics on macro variables. Therefore, it is better to abandon this strategy and instead, central bank put forward optimal respond to exchange rate dynamics. To do this, we derive an optimal policy rule for the central bank and show that the best policy is assigning equal weights to inflation rate and exchange rate in loss function and an active respond to both inflation rate and exchange rate in the policy rule.
Hossein Marzban; Parviz Rostamzadeh; Jafar Ghaderi; Abdulhamid Khosravi
Abstract
The purpose of the present research is to investigate the effective channels of the monetary transmission mechanism in Iran. To do so, we devised a New Keynesian Dynamic Stochastic General Equilibrium Model. In our model, the different types of nominal rigidities are introduced beside all the related ...
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The purpose of the present research is to investigate the effective channels of the monetary transmission mechanism in Iran. To do so, we devised a New Keynesian Dynamic Stochastic General Equilibrium Model. In our model, the different types of nominal rigidities are introduced beside all the related structural equations, which are extracted and linearized around a steady state point. Furthermore, to design the DSGE model, two different monetary rules—Taylor and McCallum rules—are used. In other words, the different channels of monetary mechanisms are investigated on the basis of these two rules. To estimate the two mentioned models, seasonal data for the period 1990–2015 are collected. The estimation method used in the study is the Bayesian method. According to the results obtained from variance decomposition, in the Taylor rule-based, q-Tobin, interest rate, wealth and expectation channels are the effective channels in monetary transmission mechanisms; also, in the McCallum rule-based model monetary policy, wealth and expectation channels are the effective channels in monetary transmission mechanisms. In addition, based on the simulation results in the Taylor model, increasing interest rate causes a reduction in output, consumption, investment and capital utilization rate, and in the McCallum model, a positive monetary shock can cause an increase in preceding variables, which is a result of price rigidity.
