Morteza Khorsandi; Karim Eslamloueyan; Hossein Zonnoor
Volume 17, Issue 51 , July 2012, , Pages 43-70
Abstract
The main goal of this paper is to derive an optimal rule for monetary policy in Iran. To do so, we estimate the monetary transmission equations and derive the optimal rule by using the dynamic programming method. Our dynamic optimization problem is to minimize the central bank's loss function subject ...
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The main goal of this paper is to derive an optimal rule for monetary policy in Iran. To do so, we estimate the monetary transmission equations and derive the optimal rule by using the dynamic programming method. Our dynamic optimization problem is to minimize the central bank's loss function subject to the transmission mechanism equations. We have modified our loss function to include inflation persistence as well. Using the growth rate in broad definition of money, M2 as our control variable, we estimate the transmission mechanism equations and derive the optimal monetary rule. Our findings indicate that the optimal monetary policy rule can decrease welfare losses and hence is a welfare improving policy. This means that the use of monetary rule is superior to discretionary policy in the case of Iran.
Mohsen Rezaee; Rafi Hasani Moghaddam
Volume 17, Issue 51 , July 2012, , Pages 71-87
Abstract
Discussion of the issues and ideas about consumption is important to the economic literature and there are many books and papers in the field. In the other hand Islamic Economics has specific view in the consumption that distinguishes it from conventional theories. However, there are important issues ...
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Discussion of the issues and ideas about consumption is important to the economic literature and there are many books and papers in the field. In the other hand Islamic Economics has specific view in the consumption that distinguishes it from conventional theories. However, there are important issues about consumption which are suggested in Islamic Economics. There are two important principles which distinguishes Islamic Economics from conventional economics. These principles include:1) expenses related to the Infaq 2) Prohibition of Israf. The main purpose of this paper is to survey consumer behavior and its optimization according to the mentioned constraints, using the Dynamic Programming Methods. Finally, after modeling it is specified that in the euilibrium path the marginal utility of consumption equals the marginal utility of infaq and the expected rate of return (as of Islamic Finance) and rate of time preference influences the consumption and infaq.
Masoud Derakhshan
Volume 17, Issue 50 , April 2012, , Pages 1-42
Abstract
Optimality conditions for consumption behavior with liquidity constraints are obtained using the functional recurrence equation in Bellman’s dynamic programming and the generalized Hamiltonian function in Pontryagin’s maximum principle. The rejection of Hall’s random walk hypothesis ...
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Optimality conditions for consumption behavior with liquidity constraints are obtained using the functional recurrence equation in Bellman’s dynamic programming and the generalized Hamiltonian function in Pontryagin’s maximum principle. The rejection of Hall’s random walk hypothesis is then established for liquidity constrained consumers. An explicit mathematical relation is formulated which demonstrates the effects of liquidity constraints on consumption, which implies that under certain conditions the liquidity constraint may shift the optimal consumption profile forward even when the rate of time preference exceeds the interest rate. Our analysis is further developed to time-varying interest rates. Using the Kuhn-Tucker conditions, we have shown the interactions between the time-varying interest rate, the utility discount rate and the severity of liquidity constraints. It is shown, using the coefficient of absolute risk aversion, that how the time-varying interest rate may affect optimal consumption through intertemporal elasticity of substitution. Simultaneous effects of the pure preference parameters, interest rates variations and the liquidity constraints on optimal consumption path are mathematically formulated. Limitations in optimal control applications in modeling optimal consumption with liquidity constraints in a stochastic environment are briefly examined.