Yazdan Gudarzi Farahani; Omidali Adeli
Abstract
The purpose of this paper was to examine the relationship between currency crises and periods of boom and bust in banking credits in Iran. For this purpose, the time-varying coefficients approach has been used over time for the period of 1989-2022, as well as the control variable of economic boom and ...
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The purpose of this paper was to examine the relationship between currency crises and periods of boom and bust in banking credits in Iran. For this purpose, the time-varying coefficients approach has been used over time for the period of 1989-2022, as well as the control variable of economic boom and recession. The currency crisis index is based on the dummy variable, the credit cycle index is calculated based on the periods of boom and bust in banking credits, and the economic cycle is also based on the periods of boom and bust in production using intermediate filters. The results obtained from this study indicated that the currency crisis had an effect on the occurrence of the cycle in granting and production facilities, and it was also observed that the shock caused by the economic cycle also had an effect on the intensification of the currency crisis and the credit cycle in the banking system. Considering the two-way relationship between the currency crisis index and credit cycles in Iran's economy, it is suggested that monetary policy makers in different conditions of economic boom and recession, as well as in the conditions of credit cycles, should refrain from implementing surprising and aggressive policies. Shocking the currency market has prevented the currency crisis from having the least negative impact on economic variables.
Narmin Davoudi; Hassan Heidari
Abstract
The role of deep hapbit in countercyclical behavior of mark-up and its impact on the transmission of monetary and fiscal shocks have already been studied, but its strength in the presence of Philips curve with price stickiness is not clear. The purpose of this study is to develop a New Keynesian ...
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The role of deep hapbit in countercyclical behavior of mark-up and its impact on the transmission of monetary and fiscal shocks have already been studied, but its strength in the presence of Philips curve with price stickiness is not clear. The purpose of this study is to develop a New Keynesian Philips Curve (NKPC) following Cristiano et al. (2005), to investigate the simultaneous effect of price stickiness and deep habits on monetary and fiscal shock transmission using Markov- switching stochastic dynamic general equilibrium (MS-DSGE) model for the Iranian economy. The results of impulse-response functions show reducing markup for one period due to deep habits and then increasing markup and inflation after a period due to a stronger role of price stickiness. Moreover, although the negative effect of wealth due to government spending is compensated by deep habits consumption and thus makes consumption increase, it is weak in comparison to the strength of expected inflation, and therefore, inflation increases eventually. Overall, the results of this study indicate that deep habits cannot be a dominant factor in the transmission of monetary and fiscal shocks, but according to the obtained impulse response functions, it can be the strong reason to delay increasing inflation. Also, deep habits consumption can be a good reason for increasing consumption and compensating of the negative effect of wealth due to fiscal shock.
Mohammad Amin Sadeghzadeh; Ahmad Reza Jalali-Naini; Naser Khiabani; Mohammad Amin Naderian
Abstract
More recent research indicates that the effect of monetary policy is state-dependent. This paper conjectures that the impact of monetary shocks on output and inflation in the Iranian economy is contingent on state of the economy, reflecting the size of oil revenue streams, which closely approximates ...
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More recent research indicates that the effect of monetary policy is state-dependent. This paper conjectures that the impact of monetary shocks on output and inflation in the Iranian economy is contingent on state of the economy, reflecting the size of oil revenue streams, which closely approximates economic cycles. Limited access to international financial markets together with fiscal spillovers emanating from financing of government expenditures and fiscal deficit finance, in a fiscally dominant environment, are the main contributing factors in this respect. To address the state-dependent effectiveness of monetary shocks in the Iranian economy during the period 1990-2017, we utilized a two-stage nonlinear SVAR model. First, the monetary and fiscal shocks were identified by a short term zero-restriction method in which fiscal dominance was taken into account as an amplification mechanism for fiscal shocks. Then, we used a smooth transition auto regressive (STAR) method proposed by Auerbach and Gorodnichenko (2012) to decompose boom and bust oil revenue cycles. Finally, the asymmetric effects of monetary shock on output and inflation in expansion and contraction phases were analyzed by impulse response functions estimated using local projection method developed by Jorda (2005). Our findings demonstrate that the reactions of output and inflation to monetary shocks are asymmetric and state-dependent over oil revenue cycles. While the impact of monetary shocks on output is positive and significant only in the expansionary phases, the positive reaction of inflation to monetary shock is stronger and more persistent in oil revenue scarce periods rather than abundant ones.
Hassan Dargahi; Mehdi Hadian
Abstract
Designing a New-Keynesian dynamic stochastic general equilibrium model, in this paper, we evaluate the impacts of monetary shocks originated from monetary base and monetary multiplier on fluctuations of macroeconomic variables in Iranian economy. Due to importance of financial sector in transmition of ...
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Designing a New-Keynesian dynamic stochastic general equilibrium model, in this paper, we evaluate the impacts of monetary shocks originated from monetary base and monetary multiplier on fluctuations of macroeconomic variables in Iranian economy. Due to importance of financial sector in transmition of economic policies effects, banking system and its current status such as fixed asset accumulation and NPLs has been added to the baseline model. Calibration of parameters of model according to quarterly data of Iranian economy during period 1990-2014 shows that the model fits the data quite satisfactorily. We find that a negative shock to reserve requirement results in slight output growth and inflation while a positive shock to banks’ borrowing from central bank results in output decline and higher inflation. In other words, for the same amount of liquidity growth, increasing of liquidity from a change in monetary multiplier, in contrast to change in monetary base, results in lower inflation and stimulating output. Therefore, it has been suggested that monetary authority should control the amount of borrowings made by banks and, instead, decreases their reserve requirement ratio as an incentive tool. This approach will encourage banks to adhere to their credit line limits and avoid overdrafts which result in higher level of stability in macroeconomic variables through monetary discipline.