Properties of Optimal Consumption under Liquidity Constraints: New Results by Control Theoretic Approach
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article
2012
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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.
Iranian Journal of Economic research
Allameh Tabataba’i University
1726-0728
17
v.
50
no.
2012
1
42
http://ijer.atu.ac.ir/article_2876_e542168c5833979b471789e26dbd3c1f.pdf
Market Structure in Iran's Banking Sector: An Application of Multilevel Models
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article
2012
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This paper analyzes Iran's banking market structure, using unbalanced panel data models during 1997-2009. To study the market structure, various measures of market concentration are examined theoretically and the U index of concentration is applied to Iran's banking system. The results show that, along with the commencement of privatization in Iran's banking sector (2001), U index of concentration has tended to decrease, indicating that competition in Iran's banking market has intensified. However, this may not happen until the strict regulations on private banks are relaxed.
Iranian Journal of Economic research
Allameh Tabataba’i University
1726-0728
17
v.
50
no.
2012
43
64
http://ijer.atu.ac.ir/article_2877_a31a113368f315a53f21a954f87ecdde.pdf
An Evaluation of Alternative BVAR Models for Forecasting Iranian Inflation
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article
2012
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This paper investigates the use of different priors to improve the inflation forecasting performance of BVAR models with Litterman’s prior. A Quasi-Bayesian method, with several different priors, is applied to a VAR model of the Iranian economy from 1981:Q2 to 2007:Q1. A novel feature with this paper is the use of g-prior in the BVAR models to alleviate poor estimation of drift parameters of Traditional BVAR models. Some results are as follows: (1) our results show that in the Quasi-Bayesian framework, BVAR models with Normal-Wishart prior provides the most accurate forecasts of Iranian inflation; (2) The results also show that generally in the parsimonious models, the BVAR with g-prior performs better than BVAR with Litterman’s prior
Iranian Journal of Economic research
Allameh Tabataba’i University
1726-0728
17
v.
50
no.
2012
65
81
http://ijer.atu.ac.ir/article_2878_f7f2f65c04d948d81966b9cbac4414f1.pdf
Relative Performance of Components Variance Estimators in Random Effects Models
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article
2012
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This paper presents an assessment of the small-sample performance of the three well-known estimators of components variance in random effects model for panel data. The estimators considered are Swamy-Arora, Wansbeek-Kaptayn and Wallace-Hussain. To this end, by simulating a one-way error component model in the form of random effects, small sample performance of three variance estimators is studied. The implications of these results for indentifying the model and its estimation are specified. In these simulations, conditions under which Swamy-Arora estimator is inferior to alternatives are expressed. It is shown that in small samples the estimator thus obtained can give highly wrong guidance. In one-way error component model this small sample size refers to the number of cross-sections.
Iranian Journal of Economic research
Allameh Tabataba’i University
1726-0728
17
v.
50
no.
2012
83
98
http://ijer.atu.ac.ir/article_2879_a548bf24179c0db90602f1c5f5892557.pdf
A Long Run Structural Macroeconometric Model for Iran
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article
2012
per
We employ the modelling strategy of Garratt, Lee, Pesaran and Shin (2003a) to estimate a structural cointegrating VARX* model for Iran in which core macroeconomic variables of the Iranian economy are related to current and lagged values of a number of key foreign variables. The long run macroeconomic relations for real money balances, interest rates, output, prices and exchange rates are identified and tested within this framework over the period 1979Q1-2007Q4. We make use of generalised impulse response functions to analyze the dynamic properties of the model following a shock to exogenous variables (oil prices and foreign interest rates). We also examine via the persistence profiles, the speed of adjustments to the long run relations following a system-wide shock. The results show that money demand relation and UIP-PPP (international parity conditions jointly) are not rejected within the model. Furthermore, these two long run relations have well-behaved persistence profiles in which the effects of system wide-shocks on the long run relations are transitory and die out eventually. However, both UIP-PPP and the money demand relations exhibit sluggish rates of adjustments to shocks. We also provide evidence for the excessive importance of oil price shocks for Iranian economy in our impulse response analysis.
Iranian Journal of Economic research
Allameh Tabataba’i University
1726-0728
17
v.
50
no.
2012
99
137
http://ijer.atu.ac.ir/article_2881_db9c1d3c51b98320a225a81139f115b1.pdf
The Impact of Migrant Labor Force on Housing Sector’s Efficiency of Iran
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article
2012
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Iran has been host to the largest number of migrants in the form of Afghan refugees since 1982. These refugees have been permitted to find jobs in Iranian labour market, particularly in the labour intensive markets like manual jobs and construction activities which could not easily be filled by Iranian workers. The research provides a critical review of the impact of migrated Afghan labourers on the efficiency performance of the construction sector of Iranian economy during the period 2006 – 2009, using data envelopment analysis. Results show that, despite the high costs incurred by Iran as host to more than one million refugees, it also benefited from the presence of Afghans. Statistical analysis shows that there is a significant difference between the efficiency scores of the provinces using more migrant Afghan labour force and those having less concentration of such labourers in construction activities. That means most of the technically efficient states in construction activities have the opportunity to employ Afghan workers, since they used to be a very competitive and flexible labour force with unattractive payment. As a result the repatriation program of the Iranian government on Afghan refugees could be limited because of the low levels of substitution among Afghan and Iranian workers in the field of construction.
Iranian Journal of Economic research
Allameh Tabataba’i University
1726-0728
17
v.
50
no.
2012
139
157
http://ijer.atu.ac.ir/article_2883_3ad23b96348b49f0886f6bdc756c6aae.pdf
Derivatives and the Financial Crisis of 2008: Managing Risk, Creating Risk, and Regulations
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article
2012
per
Exchange-traded derivatives, i.e., futures and options are the most powerful financial instruments in financial markets for hedging policies aimed at managing the price risks which are originated in physical markets as well as for speculative strategies. After a brief reference to the nature of these instruments, we have shown in this paper that derivatives, which are basically advanced innovations in financial studies, can be extremely risky and complex in practice, hence may be considered as a constant threat to international financial stability. Despite the presupposition of financial economists that innovation is the engine of growth and “capitalism’s foundational energy”, we have concluded that the widespread application of derivatives during the past two decades together with the complexities of hedging and speculation strategies, which can be misused by financial investors, can be considered as one of the main causes of the failure in market discipline mechanism which manifested in the financial crisis of 2008 and its aftermath. The effectiveness of financial regulation is a challenging question which naturally arises in this context.
Iranian Journal of Economic research
Allameh Tabataba’i University
1726-0728
17
v.
50
no.
2012
159
177
http://ijer.atu.ac.ir/article_2885_4c09a45c8458e6106668f49f086ad885.pdf
Financial Stability and Early Warning Systems:
Lessons for I.R. of Iran
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article
2012
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The main purpose of this paper is to overview early warning systems, discussing their importance and relevance for current situations of Iran’s financial system and economy. An early warning system generates ex-ante warnings of potential problems that may emerge or develop in the future on account of the current risk profile of a financial institution. Although there are various approaches to model warning and prediction of financial and economic risks, the signal extraction approach is the most popular one and gained more attention than any other approaches by financial institutions and policy makers. This approach is explained in detail. The paper will also analyze importance and relevance of early warning systems for Iran’s financial system and economy. Pointing out to some leading indicators, the paper suggests that Iranian authorities and in particular economic policy makers need to develop and design an appropriate early warning system to be able to avoid future financial and economic crises or at least take necessary measures to reduce their negative impacts
Iranian Journal of Economic research
Allameh Tabataba’i University
1726-0728
17
v.
50
no.
2012
179
195
http://ijer.atu.ac.ir/article_2887_6f4fe5bc2f81d32daa5e06111bd45ea3.pdf