Monetary policy

Profit is one of the most important factors influencing economic decision making, the changes of which depend on various factors. Banks, as one of the most important business units, have a special reliance on the concept of profitability and their performance is significantly influenced by macroeconomic conditions. Government economic policies are placed. This paper aims at applying the panel regression model to study the effect of monetary policy on the profitability of banks from 2006 to 2018 using data from 30 provinces to find appropriate policy recommendations for decision-making in the banking system. The research method was the use of GMM regression technique in the context of combined data. According to the results, the performance and profitability of banks are improved by the implementation of expansionary monetary policy. However, bank lending and price inflation have a negative effect on banks' performance. According to the results of this study, control variables such as the amount of overdue claims and GDP also had a positive effect on the performance of banks. Also at the macro level, with regard to the negative effects of Expansion monetary policy and the growth of liquidity, with the controlled implementation of Expansion monetary policy, it helps to improve the performance of banks in the banking system.

Monetary policy is one of the important economic policies that affect the macro variables of every country. One of the composite variables that are affected by the monetary policy is the FCI. This study aimed to measure the effect of monetary policy through different channels on the FCI of Iran. Using time series data from 1991-2023 and the econometric method of PCA, the FCI was first calculated. The effect of monetary policy on the FCI of the country using the Markov-switching (MSIHA(2) AR(2)) model was calculated and estimated. The results of the estimation of the Markov-switching model indicate that the studied period can be divided into two regimes of zero and one. So that 1% increase in the FCI in regime zero will lead to a 0.02% return of the FCI in the next month and a 0.36% increase in the next two months. In addition, the increase in the FCI in regime one will lead to a 0.08% return of the FCI and a 0.10% increase in the next two months. In addition, the volume of money in regime zero and regime one also positively and significantly affects FCI.

This paper has investigated the role of search and matching frictions in a monetary model and examined if the Friedman rule, advocating a rate of deflation equal to real interest rate, is still right. We defined a dynamic programming problem in which money is situated in the model by cash in advance constraint, and used a numerical method (value function iteration method) to solve the pre-mentioned problem. Also, in this paper, the concept of the homogenous agent is substituted by the heterogeneous agent, and there are two groups of agents, namely unemployed and employed agents. The difference between the two divergence groups is indicated by different constraints in this study. According to our model, the Friedman rule will not maximize the aggregate welfare of the assumed society with this new friction. It is noteworthy that the parameters of the numerical model have been derived from the United States economy and the essay is theoretical. The results can be applied in different economies with their specific parameters. Also, the study offers some implications to central banks. JEL Classification: E52, E24, C78.

This study aimed to evaluate the role of the banking system and, in particular, the monetary policies and provision of bank facilities, in recession and boom periods on employment in the labor market. In this research, the most important variables were employment, bank and financial development index, volume of facilities provided to the private sector, bank facilities rate, wage rate, workforce, capital stock, liquidity, degree of economic openness, inflation rate, direct foreign investment, government expenditures, and oil revenues. The research tool was the smooth transfer regression (STR) model applied to evaluate the relationship between the variables during 1989-2016. According to the results, there was a nonlinear correlation between banking variables and employment. In the section of the nonlinear model, it was observed that with a 2.87% increase in the inflation rate, the banking indexes (e.g., money market development, the volume of facilities granted, and liquidity) had a significant and different impact on employment. In this respect, it was found that the indicators of monetary policy and bank facilities had a weak effect on employment of the country, demonstrating the improper association between monetary policies and workforce supply and demand in the labor market of the country.

In recent decades, many countries have improved systematic control over monetary policy and stabilized inflation at moderate levels. There is a great literature on how to conduct a monetary policy. A lot of macroeconomists (for example Taylor, McCallum, Woodford and others) proposed specific monetary policy strategies, regimes and rules. This paper considers a dynamic stochastic general equilibrium (DSGE), and two basic factors have been applied. The first one is a belief that monetary policy has impact on real economic activity in the short run. This effect comes from the presence of rigidities, which give rise to non-neutral effects of a monetary policy. The second factor is a considerable improvement under theoretical frameworks used for monetary policy analysis. The research also presents a sensitivity analysis of the optimal rules to deep structural parameters and investigate properties of an optimal simple rule with respect to prevailing type of shocks. Finally, the study highlights how an optimal policy rule depends on model structure, on the model calibration and nominal rigidities. According to the research findings, based on the theoretical expectations, the effect of a positive shock inflicted on the government investment leads to increase and gradual accumulation of fixed capital formation in the public sector. Among estimated parameters consumption is first affected and reduces, then employment increases consequently, finally production will also be affected. Also with the shock of oil revenues, increased oil revenues results in public investment at first, because the increase in oil revenues, the government increases development expenditure. Though increase in development expenditure is more than Increase in current expenditure. Enhancing development expenditure & construction spending causes total spending increase and as a result of increased production of oil income, consumption and total investment will rise. This increase leads to inflation too. Though by increasing the inflation resulted from oil revenues, the monetary authority will react through reducing the growth rate of the monetary base.

This paper attempts to compare a Markov-Switching Dynamic Stochastic General Equilibrium (MS-DSGE) model by including deep habits consumption to a MS-DSGE model without deep habits. It is concluded that the deep habit adjusted model with regime switching is able to fit the Iranian data better. The results of estimating parameters indicate that deep habit formation, together with the persistence of habit stock, are significant parameters. The results also confirm that current and future consumption demand, expected marginal cost and stock of habits are effective driving forces in extracted New Keynesian Philips Curve considering deep habits. However, in contrast with Ravn et al (2006, 2010) findings, it is shown that presence of deep habit consumption in the model for Iranian economy, cannot lead to reduce inflation in response to monetary shock while the amount of increase in inflation in response to monetary shock in the model with deep habit is less than inflation increase in model without deep habits. Furthermore, in response to fiscal shock in the model considering deep habits, the negative effect of wealth could not be compensated in Iranian economy. Therefore, consumption begins to decrease in response to fiscal shock, although these reduction in the model without deep habits takes more longer than in the model with deep habits.

The aim of this study was to assess the performance of the Iranian currency exchange market by analyzing the dynamic conditional correlation (DCC) between the Iranian currency exchange rate and the free market exchange rate of the US dollar in Iran. This analysis was conducted for both the same day and with a one-day lag, spanning from June 20 to October 30, 2022. The results of the study indicate that the DCC for concurrent days (denoted as dcc0) stood at 48%. Meanwhile, the DCC for the Iranian currency exchange rate with a one-day delay compared to the free market US dollar exchange rate in Iran (referred to as dcc+1) was 17%, and the DCC for the free market US dollar exchange rate with a one-day lag behind the Iranian currency exchange rate (referred to as dcc-1) was 35%.

Financial sanctions have many economic consequences for the oil exporting economies. The sanctioned economy adopts economic policies to deal with it. This paper examines the relationship between financial sanctions, oil revenues and monetary and fiscal policies in Iran and explicates how financial sanctions have affected Iran's access to oil revenues. It also examines the role of fiscal and monetary policies in financial stability and resilience in Iran's economy. To this end, we employed a DSGE model with the new Keynesian approach. The results indicate that the interest rate, consumption, imports and inflation have a positive reaction to the oil revenue shock resulting from financial sanctions. However, the production, export, private sector investment and oil sales indicate a negative reaction to the oil revenues’ shock. Regarding the monetary policy shock, the reaction of production and consumption to the shock is positive. However, the reaction of oil sales and interest rate to this shock is negative. In terms of financial policy shock, production, consumption, investment and export indicated a positive reaction to this shock. However, the interest rate, imports and oil sales indicated a negative reaction to the fiscal policy shock. Monetary and fiscal policy shocks increase the effect of financial sanctions for a short period, while monetary policy shock has reduced the effect of financial sanctions for three periods. Therefore, monetary policy has been more effective than fiscal policy in reducing the effect of financial sanctions.

A developed financial system, which ensures the provision, allocation, and direction of resources toward productive economic sectors, is one of the key drivers of economic growth and development. On the other hand, given the low efficiency of various economic, productive, and social sectors, attention to total factor productivity (TFP) is fundamental for global competitiveness. Given resource constraints in the economy, improving this factor can enhance investment, optimize resource allocation, prioritize productive sectors, reduce costs, improve product quality, and increase value added in economic sectors. Accordingly, the present study aims to investigate the impact of credit on total factor productivity and the growth of value added in Iran’s economic sectors using the Panel ARDL approach and quarterly time series data from 2012Q1 to 2024Q4 (Persian calendar). The results indicate that real credit, real exchange rates, and real capital formation in machinery have a positive and direct impact on the growth of value added and total factor productivity in economic sectors. Specifically, credit in the industrial sector and exchange rates in the service sector exert the greatest influence on TFP and the growth of value added. Additionally, capital formation in machinery in the agricultural sector has the most significant impact on total factor productivity.

When the economy encounters sudden foreign shocks, the current account is regarded as an important political priority. This paper has studied the effect of share price shocks on the current account in the member states of ECO from 2008-2012. It has tried to answer how the share price shocks affect fluctuations of the current account in the member states of ECO by using scientific methods. By using theValue at Risk(VaR)approach, the results obtained for the current account fluctuations variable revealed that share price, the ratio of the current account balance to GDP, and the nominal interest rate have the greatest effects onthis variable. Furthermore, the least explanatory power in the current account fluctuations pertains to GDP and consumer price variables

Inflation as an undesirable economic phenomenon in recent years has had devastating effects on Iran economy. This made economic researchers devote plenty of reports and researches to the causes or ways to cope with inflation in Iran. In the present study, considering the importance of inflation, it was tried to take advantage of the econometric model to examine the effect of in Iran economy by using annual information from 1974 to 2021 and by using the Generalized Method of Moments (GMM). The results of the GMM model showed that the variables of labor wage index, liquidity volume, time-lag inflation and unofficial exchange rate growth have a positive and significant effect on inflation in Iran. Also, the GDP growth variable has a negative and significant effect on the dependent variable. The study suggests that in order to control inflation, the government in Iran should consider issues such as stability in economic policy-making, adopting appropriate fiscal policies, especially through budgetary discipline, and consistency of monetary and fiscal policies to curb inflation, to be important.

This study seeks to rigorously assess the relationship between Iran’s stock market index and monetary policy within the framework of the Markov Switching Vector Autoregressive (MS-VAR) model. The MS-VAR methodology is particularly well-suited for capturing regime-dependent dynamics and structural shifts in macroeconomic and financial time series. For this purpose, quarterly data spanning from Spring 2009 to Fall 2023 have been employed. All estimations were conducted using EViews 12 and OX Metrics 7 software. As a preliminary step, the Hodrick-Prescott filter was applied to differentiate between two distinct market regimes. Combined with a univariate Markov Switching model, this approach enabled the identification of cyclical fluctuations in the stock market, distinguishing bull from bear market phases. The results indicate that Regime 1 (bear market) demonstrates greater persistence and stability relative to Regime 2 (bull market), suggesting asymmetric market dynamics. Subsequently, the study investigates the effects of monetary policy—proxied by the interbank market rate and liquidity growth—on the growth of the stock market index within the MS-VAR framework. The findings suggest that monetary policy has different effects during bull and bear market phases. The stock index exhibits a prompt and asymmetric response to changes in both the interbank market rate and liquidity growth. Specifically, in both bull and bear market regimes, an increase in the interbank interest rate exerts a contractionary effect on stock index growth, with a more pronounced negative impact observed during periods of market recession. Moreover, liquidity growth consistently contributes positively to stock index growth across both regimes, with a more pronounced effect under bull market conditions. Variance decomposition analysis further reveals that, in both regimes, shocks to the stock index itself account for the largest proportion of its fluctuations. Nonetheless, the relative importance of monetary policy instruments varies by regime: In both expansionary and recessionary phases of the stock market, shocks stemming from the interbank market rate play a more prominent role in explaining stock index volatility compared to liquidity shocks. Finally, the presence of nonlinear interactions among the variables is statistically validated based on the Likelihood Ratio (LR) test.

Monetary policy is one of the most important tools for policymakers to influence macroeconomic variables including production. However, implementing this policy sometimes yields unintended consequences. Understanding monetary policy transmission mechanisms is therefore critical for effective implementation. Research following the 2008-2009 financial crisis indicates that the shadow banking activity can disrupt the monetary policy transmission and weaken its effectiveness. An analysis of Iran’s financial system reveals increasing shadow banking activity. This paper therefore examines how shadow banking affects monetary policy transmission in Iran using a DSGE model that innovatively incorporates the shadow banking sector. We compare two scenarios: a financial system without shadow banking and one including shadow banking. The effects of two contractionary monetary policies—interest rate increase and reductions in money supply growth—on GDP, investment, and inflation were analyzed under each scenario. The findings indicate that shadow banking diminishes monetary policy’s impact on all three variables by weakening the credit channel of monetary policy transmission. In the scenario without shadow banking, In the scenario without shadow banking, all three variables will decline in response to the monetary shock of decreasing money supply growth. However, in the scenario with shadow banking, investment levels are not declining but rising. The impact of monetary policy on output and inflation is diminished in the presence of shadow banking. In the case of interest rate shocks, the results also indicate a negative impact of shadow banking on the effectiveness of monetary policy.

The concept of liquidity creation has received much attention in project financing, as increased liquidity facilitates easier access to financial resources for long-term projects (Berger & Bouwman, 2009). However, the liquidity creation process is often accompanied by risk. Despite its advantages, if not managed properly, it can cause problems for the banking system and even the entire economy. On the other hand, capital is considered an influential variable in risk management, which helps the bank control challenging conditions. In this regard, the present research was conducted to investigate the moderating role of capital in the relationship between liquidity creation and failure risk, and further tried to examine the role of the monetary policy adopted by the central bank, considering the macro effects of this variable. This applied research project examined the banks admitted to the Tehran Stock Exchange from 2012 to 2018. The results showed that by controlling the variables of interbank interest rate and the variety of loans and deposits, liquidity creation is significantly and directly associated with failure risk. Moreover, the findings confirmed the moderating role of bank capital in the relationship between liquidity creation and failure risk. However, the monetary policy adopted by the central bank revealed an insignificant effect on this relationship. Therefore, decision-makers should consider these factors in the decision process.