Document Type : Research Paper
Authors
Abstract
Abstract
Banking industry is the most important type of financial intermediaries in Iran which, by sound organization and management of its resources and their use, can provide grounds for economic growth and prosperity. Because of the extensive network of relationships between banking sector and major sectors of the economy, shocks initiated in the banking sector can affect the behavior of economic agents and macroeconomic variables such as output and inflation. Among the set of most important shocks to bank balance sheet, we can name examples such as shocks of deposit withdrawals by depositors and bank liquidity shocks, both as liability shocks and shocks to the reserve of non-performing assets as an asset shock. As a result, the effects of banking sector balance-sheet shocks on macroeconomic variables are important. In this study, by using New Keynesian dynamic stochastic general equilibrium (DSGE) model and the annual data for the period of 1981-2012, we examine the response of macroeconomic variables such as output and inflation to banking sector’s balance-sheet shocks. To extract the parameters of the DSGE model, we use calibration method and then we use the moments of first and second order to evaluate the accuracy of the model based on autocorrelation coefficients and response functions. The results of model evaluation showed a pattern consistent with theoretical expectations and the realities of the Iranian economy. The results also showed that the negative effects of balance sheet shocks stemming from the shocks of the reserve of non-performing loans on output and inflation are higher than the shocks resulting from withdrawal of deposits and bank liquidity shocks, but the effects are diminished in shorter period of time. On the other hand, the negative impact of the liquidity shock is lower than other shocks and in a very short period of time, the effects of this type of shocks fade out and inflation and output variables rapidly converge to a stable state.
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