Channels of Transmition the Effects of Monetary Policies on Inflation in Iran's Economy by Using Markov Switching Vector Autoregressive Approach

اقتصاد پولی مالی

Article 4, Volume 28, Issue 21, November 2021, Pages 87-104   

Document Type: پژوهشی

DOI: 10.22067/mfe.2022.68688.1027

Authors

samira zareinezhad¹; kiomars sohaili^{* 2}; Shahram Fattahi³

¹Master of Art student/ Department of Economics/Faculty of Social Sciences/Razi University/ Kermanshah/Iran

²Member of Scientific Board / Department of Economics, Faculty of Social Sciences, Razi University/Kermanshah/Iran

³Member of Scientific Board / Department of Economics/ Faculty of Social Sciences/ Razi University/ Kermanshah/ Iran.

Abstract

Extended abstract
1- INTRODUCTIO
In order to have an effective monetary policy, it is necessary for the monetary authorities to have sufficient information about the effect, the channels of start the effect, the duration of the effect and the time when the effect of the monetary policy effect peaks. Therefore, it is necessary to examine the intersection of credit channel, housing price channel, stock price channel and exchange rate channel in the nonlinear transmission mechanism of monetary policy on inflation in the Iranian economy. It has a structure in different regimes and the data of the central bank are used during the years1978-2017.
 
2- THEORETICAL FRAMEWORK
Monetary policy is a set of actions that the central bank (monetary authority) through monetary instruments affect many economic goals such as price stability, exit from recession, stimulation of economic growth and increasing employment. This effect of monetary policy on the set goals and improvement in macroeconomic performance will indicate the efficiency of monetary policy. Central banks, as monetary policy makers in most countries of the world, seek the effectiveness of their monetary policies and to better understand the structures governing their economic environment in order to implement appropriate and timely policies and put economic variables on the path of growth and development. In this regard, how to formulate monetary policy and use monetary instruments is of particular importance in macroeconomics.
 
3- METHODOLOGY
A novel feature of the Markov switching model is that the regime change mechanism in this model depends on a status variable. in other words, the recent value of the state variable just depends on the its value in previous periods. to calculate the unconditional probabilities in a model that include two regimes indicate the probability of being in each regime, we can consider the possibility of changing the parameters in different regimes, the linear VAR model transforme the MSVAR model:
 




 


 
 




 4- RESULTS &DISCUSSION
The role of the exchange rate channel in transferring money to inflation is positive in both regimes, meaning that it increases inflation. Given the structure of the Iranian economy and due to the high dependence on the price of finished products of domestic production to imported capital goods, it seems that the exchange rate will play a dominant role in determinayion the fate of inflation in the Iranian economy.
The role of housing price channel in transferring money to inflation in regime one increases inflation and negative effects on monetary policy in Iran’s economy, while in regime two, housing price channel in transferring money to inflation has played the largest share in reducing inflation.
The role of corporate credit channel in transferring money to inflation in the regime has a greater share than the second regime in transferring money to inflation. As a result, in economic policies, special attention should be paid to the inflationary effects if the granted facilities.
Stock price channel, support of the stock market should be one of the main priorities of officials. Because in the Iranian economy, which is always involved in high inflation, the stock market without inflationary effects can increase investment to increase production.
5-CONCLUSIONS & SUGGESTIONS
According to our results, it is suggested that to control inflation, policymakers should pay special attention to changes in currency price. At the same time, the policymaker can reduce the dependence of the country's industry on the import of capital goods and strengthen domestic financial instruments, such as the return on bank deposits, stock exchanges, etc. To strengthen other transfer channels so that it can rely on other channels to control inflation.

Keywords

Transfer channels; Monetary policy; Inflation; Iranian Economy; Markov Switching

Supplementary Files

Extended abstract 21.pdf

References

References

Anwar, S. (2018). Channels of monetary policy transmission in vitnam. Journal of policy modelhng Available online, 27.

Barghi, O.; Shahbazzadeh, M., & khiyavi, A. (2014). Oil and gold prices, emphasis on markov switching nonlinear approach, Quarterly journal of Energy Economics studies. 10(40), 39-64. (in Persian)

Barzegari, M., &  khodaveysi, H. (2016). Investigating the effect of inflation on economic growth in iran in the frame-work of markov switching model.  27-48. (in Persian)

Blke, A., & joscha, B. (2015). Monetary policy stock prices cross country evidence from cointegrated VAR models. jurnal of banking& finance, (54) , 254-265.

Deniz, I. (2016). Monetary policy and baance sheets, journal of policy modeling.

Filppo,  L.; Kozdagli, A., & Perez, A.  (2018). The transmission of monetary policy through bank lending: the floating rate channel. Journal of monetary Economics, Available online,  (21).                     

Gholizadeh, A., & Kamyab, B. (2010). Investigating the effect of monetary policy on the housing price bubble: an interstate study. Quarterly journal of economic research,  (92), 207-238. (in Persian)

Gong, P.; Dai, J. (2017). Monetary policy  exchange rate fluctuation and herding behavior in the stock market. journal of business research,  ( 76),  34-43.

Harris, D. (2006). Monetary policy in open Economies.  journal:Europen Economic Review, ( 50), 71-86.

Hjortsoe, I.; Weale, M., & Wiladek, T. (2018). How does financial liberalisation affect the influence of monetary policy on the current account. Jurnal of international money and finance, ( 85),  93-123.

Jafari Samimi, A., & Tehrancheyan, A. (2007). Macroeconomics in optimizing monetary and fiscal policy on major macroeconomic indicators in iran: An application of optimal contorol theory. Journal of Economic Research, (65),  213-242. (in Persian)

Komijani, A., & Mashhadi Ahmad, F. (2012). Monetary policies and its impact on economic growth with emphasis on bank interest rates in iran. Journal of economic research. 47(4), 179-200. (in Persian)

Komijani, A.; Alinezhad, d., & Mehraban, F. (2012). Evaluation of the effectivess of money transfer channels on producton and inflation and analysis of their relative importance in the iranian economy. quarterly journal of scientific research, 17(2), 39-64. (in persian)

Mahdilo, A., & Asgharpor, H. (2020). Mechanism of nonlinear transmission of monetary policy through the stock price channel in iran: Approach(msvar). scientific journal of economic policy,  12, (23), 66-95. (in persian)

Mahdilo, A., & Asgharpor, H. (2020). The role of th exchange rate channel in the mechanism of nonlinear transmission of monetary policy in iran. Approach(msvar). Quantitative economic quarterly, 17(1),  121-153. (in Persian)

Mahdilo, A.; Asgharpor, H., & Fallahi, F. (2018). Nonlinear estimation of the role of monetary policy transmission channels in the iranian economy:. Ms-var Approach. quarterly journal of monetary banking research, 11(37), 319-354. (in Persian)

Moshiri, S., & Vasheghani, M. (2010). Investigating the mechanism of money transfer and its timing in the iranian economy. Quarterly journal of economic modeling , 4(1),  1-31. (in Persian)

Mujtahed, A. (2009). Review of the tools and monetary policies of the cental bank of iran. Money and economics quarterly.  (1),  2-21. (in Persian)

Nademi, Y. (2017). Research and economic growth budget in iran: markov switching approach. Quarterly journal of economic research and policy,  25(82),  197- 231. (in Persian)

Noferesti, M. (2005). Investigating the impact of monetary and exchange rate policies on the iranian economy in the framework of a dynamic macroeconomic model. Journal of economic research,  (70), 1-29. (in Persian)

Nonezhad, M.; Zamanikurshole, B., & hoseinzadeh, M. (2012). The effect of  monetary policy on the stock price index in Iran. Quarterly jurnal of economic sciences,  (20),  39-64. (in Persian)

Partachi, L., & Mija, S. (2013). International coference on Globalization and Higher Education in Economics and Business Administration.  485-493.

Raei, R.; Irvani, M., & Ahmadi, T. (2018). Monetary shocks and channelx of transmission of monetary policy in the iranian economy with emphadis on the exchange rate of housing price; and credit.  8, (31), 44-92.  (in Persian)

Rezazadeh, A.; Mohammadpor, S., & Fatahi, F. (2018). Application of threshold vector autoregression  model (tvar) in nonlinear analysis of exchange rate passage on inflation in iranian economy. Iranian journal of applied economic studies, 7(27), 51-81.  (in Persian(

Salem, B. (2010). History of monetary policy economic journal monthly reviewof economic issues and policies. 6(7),  81-92. (in Persian)

Taghavi, M., & Lotfi, A. (2007). Investigate the effects of monetary policy on the volume of deposits facilities granted and liquidity of the country's banking system (during 1995-2003), Economic research journal. 6(20), 131-165. (in Persian)

Thornton, D. (2014). Monetary policy: why money matters(and interest rates don't).  jurnal of macroeconomics, 40, 202-213.

Ume, E. (2018). The impact of monetary policy on housing market activity: An assessment using sing vestrictions, Journal Economic modeling, (68), pp23-31.