Hadi Keshavarz; Hojat Parsa
Abstract
This study aimed to examine the effects of monetary policy on macroeconomic variables with regard to the collateral constraint. For this purpose, a dynamic stochastic general equilibrium (DSGE) was developed for Iran’s economic status. Two scenarios were considered as to account for the behavior ...
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This study aimed to examine the effects of monetary policy on macroeconomic variables with regard to the collateral constraint. For this purpose, a dynamic stochastic general equilibrium (DSGE) was developed for Iran’s economic status. Two scenarios were considered as to account for the behavior of the central bank. In the first scenario, the monetary rule is modeled according to the GDP gap and inflation. In the second scenario that is modeled by macro-prudential rule, in addition to the GDP gap and inflation, it is also the central bank responses to the housing price gap that contributes to a steady state. An examination of the impulse response functions in the two scenarios indicated that the monetary shock increased production and inflation. A monetary shock has a positive impact on the consumption of patient households (lenders) and a negative effect on impatient households’ (borrowers) consumption. The collateral constraint was assumed to cause the effects of shocks to be continued on both groups. A comparison between the two scenarios indicated that if the central bank responds to the housing price deviation, in addition to the GDP gap and inflation, the effectiveness of the monetary policy will be strengthened.
Sayed Yahya Abtahi; Elham Amrollahi Bioki
Abstract
This study was an attempt to analyze the dynamic reaction of the exchange market pressure (EMP) to different states of the foreign exchange market and inflation in the Iranian economy during 1988:4-2017:4. To this end, the EMP index was calculated using Edwards’s (2002) and Kumah’s (2007) ...
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This study was an attempt to analyze the dynamic reaction of the exchange market pressure (EMP) to different states of the foreign exchange market and inflation in the Iranian economy during 1988:4-2017:4. To this end, the EMP index was calculated using Edwards’s (2002) and Kumah’s (2007) formulae. By considering inflation as the threshold variable and using Threshold Vector Autoregressive (TVAR) model, the results showed that lagged variables had no significant effects on EMP in a low inflation regime, but inflation had significant effects on EMP in a high inflation regime. The results of using the Markov Switching Vector Autoregressive (MS-VAR) model showed that in EMP and INF equations, the autoregressive coefficients in all lags and in both regimes were significant; this emphasizes the stability of the estimated VAR model. Based on the results of the MS-VAR equations, the results of the Granger Causality Test showed that when the EMP switched to a high regime, the inflation would have a significant impact on the EMP, but in the regimes where the EMP was at a low level, the inflation was not the cause of the EMP. EMP in low inflation regimes could also affect inflation while EMP was not the cause of inflation in high inflation regimes. Therefore, the policymakers should note that increasing EMP, even in low inflation regimes, can lead to pressure on prices. On the other hand, an increase in the foreign reserves causes the EMP to switch to a high regime; then, the inflationary pressures at any level of the inflation rate can exacerbate the exchange market pressure, and policymakers would be unable to control the currency market. Thus, if the EMP is controlled, the effects of inflation on the EMP will be discontinued, and this is a key point for policymakers.
Raha Pourahmadi Haghighi; Ebrahim Hadian; Ahmad Sadraei Javaheri; Rouhollah Shahnazi
Abstract
It is obvious that an optimal policy should consider main dimensions of the phenomenon that can affect the transmission mechanism of that policy. In an open economy, it is expected that variables of the foreign sector play important role in its economic behavior. Therefore, it needs that any optimal ...
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It is obvious that an optimal policy should consider main dimensions of the phenomenon that can affect the transmission mechanism of that policy. In an open economy, it is expected that variables of the foreign sector play important role in its economic behavior. Therefore, it needs that any optimal policy in an open economy to design in such a way which involves changes in the foreign sector. Due to this fact, this paper aims at assessing the monetary policy of Central Bank of Iran to find that whether this policy takes a right way or not. To do so, a DSGE model along with MCMC criteria are employed.The main result indicates that the Central Bank decision on monetary policy follows McCallum rule without any respond to exchange rate shocks.
Hassan Daliri; Nader Mehrgan
Abstract
The recent financial crisis has raised several questions with respect to the financial institutions and banking industry. Hence, over the last decade the Iranian banking industry has undergone many substantial changes, such as liberalization, government regulation and technological advances. What impacts ...
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The recent financial crisis has raised several questions with respect to the financial institutions and banking industry. Hence, over the last decade the Iranian banking industry has undergone many substantial changes, such as liberalization, government regulation and technological advances. What impacts do these changes have on the policy instruments? We have answered this question in this study. To do this, we used the DSGE models. We also used two kinds of basic DSGE structures: External Finance Premium (EFP) Model and Collateral Constraint (CC) Model. Both models are simulated for Iran. Finally, we have examined the effects of monetary shocks for each model variables. We employed a Bayesian method to estimate the parameters of DSGE models. We have concluded that the prediction power of the EFP models is better than that of CC model. In addition, the results showed that the increase in liquidity raises output, inflation, investment and consumption. Moreover, it was found that the responses of variables to monetary policy in the CC model was greater than of the EFP model.
Iman Bastanifar; Mohammad Vaez Barzani
Abstract
Monetary policy rule might be helpful to avoid the problem of time inconsistency provided there is a commitment to the rule. The commitment is the ability of a government to bind future policies. However, it doesn’t include intrinsic motivations. Therefore, hegemony, which includes both intrinsic ...
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Monetary policy rule might be helpful to avoid the problem of time inconsistency provided there is a commitment to the rule. The commitment is the ability of a government to bind future policies. However, it doesn’t include intrinsic motivations. Therefore, hegemony, which includes both intrinsic and extrinsic motivations, better solves the problem of time inconsistency. In this paper, we explain the nature of hegemony and discuss why hegemony is preferred to commitment. We have used an index of hegemony to evaluate monetary policy and estimate the hegemony of Supervisory Packages on Monetary Policy (SPMP) of Islamic Republic of Iran for the period 2008-2011 by using fuzzy logic. The results show that an optimal hegemonic policy is better than the optimal commitment policy if and only if adjusted total effect of intrinsic motivation on an agreed-upon social objective function is positive. The results show that the hegemony index of central bank which consists of a combination of three sub-indexes such as "regional equity", "commitment ordering" and "diversity of economic activities" is relatively low and needs to be increased to ensure economic stability.
