Financial Economics
Reza Taleblou; Parisa Mohajeri; Abbas Shakeri; teymoor mohammadi; zahra zabihi
Abstract
Achieving the correct insight into the structure of connectedness and the spillover of volatilities between different stock exchange industries plays an important role in risk management and forming an optimal stock portfolio. Also, the analysis of inter-sectoral connectedness helps policy makers in ...
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Achieving the correct insight into the structure of connectedness and the spillover of volatilities between different stock exchange industries plays an important role in risk management and forming an optimal stock portfolio. Also, the analysis of inter-sectoral connectedness helps policy makers in designing policies that stimulate economic growth and implementing preventive measures to curb the propagation of systemic risk. In this regard, this article tries to use the data of 3370 trading days during the period of 1388/07/01 to 1402/06/31, encompassing 20 stock market industries (which constitute more than 80% of the Iranian stock market) and applying the connectedness approach based on the vector autoregression model with time-varying parameters (TVP-VAR), to estimate the systemic risk and volatility connectedness of the stock market network. In addition, we implement the minimum connectedness approach in the optimal stock portfolio and compared its performance with two other conventional approaches. The findings reveal that, first; the systemic risk in Iranian stock market is significant and has reached unprecedented figures of 80% in the last three years. Second, the four major export industries (petrochemicals, metals, mining and refining) experience the strongest pairwise connectedness, and among them, base metals appear as one of the most important transmitters of volatilities to the entire stock network. Thirdly, the stock portfolio based on the minimum connectedness method, compared to the minimum variance and minimum correlation methods, shows a better performance based on the criteria of cumulative return and hedge ratio efficiency.
Monetary economy
Mohammad Mahdi Asgari Dehabadi; Ali Nassiri Aghdam; Hossein Doroodian; Parisa Mohajeri
Abstract
Iran’s economy has encountered significant challenges in recent years, with the government debt to contractors emerging as one of the most urgent issues. This situation has negatively impacted Iran’s monetary and banking system, leading to several adverse consequences such as increased funding ...
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Iran’s economy has encountered significant challenges in recent years, with the government debt to contractors emerging as one of the most urgent issues. This situation has negatively impacted Iran’s monetary and banking system, leading to several adverse consequences such as increased funding costs for banks, higher loan interest rates, excessive money supply, and a reduced capacity for banks to provide loans. A proposed solution is based on credit easing and endogenous money, which involves settling the government debt to contractors by making adjustments on the asset side of the Central Bank’s balance sheet. However, the practical implementation of this policy depends on the use of Central Bank resources, which raises concerns about a sudden increase in the money supply and potential negative effects on other economic variables, especially inflation. This uncertainty has led to doubts about the feasibility of such a strategy. The present research aimed to examine the fundamental principles and prerequisites for adopting a credit easing policy in Iran. The study also used stock-flow consistent models to evaluate the potential outcomes of implementation of the policy. The findings indicate that settling the government debt to banks by using the Central Bank resources results in an expansion of the monetary base and money supply, an increase in real GDP, and a reduction in both inflation and interest rates compared to the baseline scenario.1.IntroductionIran’s economy has been facing various problems in recent years. One significant issue is the government debt to contractors, which has adversely affected Iran’s economy, particularly the monetary and banking system. The government’s failure to settle its debts with contractors results in contractors being unable to repay loans taken from banks, leading to an increase in the banks’ non-performing loans. This predicament has precipitated several adverse consequences, including higher funding costs for banks, increased interest rates on loans, an uncontrolled surge in the money supply, and a diminished capacity for banks to provide loans. To address this challenge, some economists, emphasizing endogenous money, look to the quantitative policies applied by central banks in advanced countries like Japan and the United States. They have proposed a solution grounded in credit easing, which involves settling the government debt to contractors by making adjustments on the asset side of the Central Bank’s balance sheet.2.Materials and MethodsIn this method, the government issues bonds to settle its debt with contractors and provides these bonds to the contractors. The Central Bank then purchases these bonds by increasing the bank’s reserves. Since the Central Bank does not directly transact with individuals, it uses commercial banks as intermediaries to facilitate the payments. Consequently, the money supply and the monetary base increase immediately. However, if the contractors owe money to the banks, according to the law of reflux, the newly created money will quickly disappear. This method is largely similar to the second type of treasury bonds used by the Iranian government in recent years. Implementing this policy can reduce non-performing loans, curb the growth of the money supply, and prevent the recognition of illusory profits. It can also lower the level of overdue loans and improve banks’ balance sheets. Additionally, it can reduce the banks’ debt to the Central Bank, thereby lowering the cost of money and reducing loan interest rates. Moreover, the reduction in interest rates can lead to increased loan demand and, consequently, future growth in the money supply.It should be noted that this policy leads to a change in the composition of the Central Bank’s assets, but it does not necessarily result in the growth of monetary base and money supply. However, since the policy relies on the use of Central Bank resources, concerns about a sharp increase in the money supply and potential adverse effects on macroeconomic variables, such as inflation, have always hindered its adoption. The present study used Stock-Flow Consistent (SFC) models to evaluate the effects of these policies on Iran’s macroeconomy. Having gained prominence since the 2007–2008 financial crisis, SFC models aim to integrate the real and financial sectors of the economy within a single framework. They help predict endogenous crises in the economy and enable modeling of the economy based on endogenous money. Therefore, SFC models were used to determine the effects of policies similar to credit easing to settle the government debt with contractors. The focus is on various economic variables, including the monetary base, money supply, and banks’ balance sheets in the monetary sector, as well as real GDP, economic growth, real consumption, inflation, and interest rates in the real sector of the economy.3.Results and DiscussionThe results indicate that settling the government debt to banks by using the Central Bank resources leads to an expansion in the monetary base and money supply, as well as an increase in real GDP and real consumption compared to the baseline scenario. However, the effect of this policy on economic growth completely dissipates after eight periods following its implementation, with the growth rate difference eventually tending towards zero. The graph below illustrates the difference in economic growth between the baseline scenario and the scenario where the government debt to contractors is settled using the Central Bank resources. Figure 1. Difference in Economic Growth: The Baseline Scenario and the Government Debt Settlement Scenario Source: The research analysisAccording to the model’s results, implementing this policy leads to a long-term decrease in inflation by 0.23 percentage points.Figure 2. Difference in Inflation: The Baseline Scenario and the Government Debt Settlement Scenario Source: The research estimationsAdditionally, the results indicate that the policy can lead to a 0.53 percentage point decrease in the interest rate. Figure 3. Difference in the Interest Rate: The Baseline Scenario and the Government Debt Settlement Scenario Source: The research estimations4.ConclusionThe model’s results indicated that the policy, despite increasing the money supply compared to the base scenario, leads to improved economic growth, reduced inflation and interest rates, enhanced bank balance sheets, and increased household welfare (via higher real consumption) compared to the baseline scenario.However, the method is recommended only to address the current problem in the present situation. The research results showed that the proposed policies guide the economy onto a better path than its current trajectory, but they are not a prescription for the government’s indiscriminate use of the monetary base. To improve conditions in the long term, the government needs a program to control its budget deficit and stop borrowing from banks and the Central Bank. According to the findings, borrowing from the Central Bank to settle outstanding debts with contractors is preferable to leaving these debts unpaid. However, the optimal approach is for the government to avoid needing to borrow from the Central Bank altogether.
Financial Economics
Hossein Talakesh Naeini; Reza Taleblou; Teymor Mohammadi; Parisa Mohajeri
Abstract
Extensive applications of asset pricing in the fields of finance and economics lead to an increasing importance of this issue, which has attracted more attentions of researchers in theoretical and empirical aspects. Due to this issue, the main purpose of this paper is to compare two asset pricing methods ...
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Extensive applications of asset pricing in the fields of finance and economics lead to an increasing importance of this issue, which has attracted more attentions of researchers in theoretical and empirical aspects. Due to this issue, the main purpose of this paper is to compare two asset pricing methods i.e. “Beta” and “stochastic discount factor” in Iran Stock Exchange market. Using the monthly data of Tehran Stock Exchange index return and return of shares of the companies listed in the stock exchange market of Iran during 1379(1) to 1398(6), we have formed 5*5 baskets-called 25 portfolios of Fama and French- to evaluate the efficiency and stability of one factor model (capital asset pricing model) and multi-factors model (Fama and French’s 3 factors model) using Generalized Method of Moments (GMM) estimation method. The results show that the aforementioned methods are not completely superior to each other. In fact, for CAPM model, stochastic discount factor method is more efficient and less stable than Beta method and vice versa for Fama and French’s 3 factors model.
Ali Asghar Banouei; parisa mohajeri; narges sadeghi; afsaneh sherkat
Abstract
In this article, we show that the application of LQ methods for estimation of RIOT in Iran requires two types of residuals. To tackle with this problem, a new mixed FLQ-RAS method is proposed. This method maintains the official data of regional accounts that has been provided by the Statistical Centre ...
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In this article, we show that the application of LQ methods for estimation of RIOT in Iran requires two types of residuals. To tackle with this problem, a new mixed FLQ-RAS method is proposed. This method maintains the official data of regional accounts that has been provided by the Statistical Centre of Iran and therefore, the sectoral export is used as a residual. Domestic National, Gilan IOTs and regional accounts for the year 2002 have been used. FLQ and FLQ-RAS methods have used to estimate the RIOTs of Gilan. For the evaluation, we have used five conventional statistical methods for error measurment. The results are twofolds.The minimum adjustment is 0.9% for agriculture and the maximum adjustment is 55% for mining. Second the degree of accuracy between the two methods reveals that the proposed method outperforms than the FLQ method. The application of the proposed method has four advantages in Iran: one- flexibility for covering more sectors, two- extension to other regions, three- its complete consistency with the basic data of the country and four- its flexibility in considering exogenous or superior data at the regional level.
Parisa Mohajeri; Zahra Zabihi; Sahar Sadeghi; Ziba Eghtesadi
Abstract
Since the introduction of supply-use input-output model by the United Nations in its 1968 SNA, there has been a controversy on choosing the most appropriate technology assumption for estimating symmetric product by product input-output table. These arguments have focused on two technology assumptions; ...
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Since the introduction of supply-use input-output model by the United Nations in its 1968 SNA, there has been a controversy on choosing the most appropriate technology assumption for estimating symmetric product by product input-output table. These arguments have focused on two technology assumptions; the product technology assumption (PTA) and the activity technology assumption (ATA). The PTA states that each product has a unique input structure that is independent of producing industry. In contrast, the ATA is defined as each activity has its own specific way of production, irrespective of its product mix. Each assumption has its own advantages and disadvantages. Because of ATA’s inconsistency with some fundamental economic theories, “Product Technology” assumption is more widely applied for calculating symmetric product-by-product input-output table. In this paper, we show that only PTA fulfills the four desirable properties (material balance, financial balance, scale invariance and price invariance) which are introduced by Jansen and ten Raa (1990) but ATA fulfils only one of them. This result can be used by compliers and users in choosing the appropriate economic assumptions for deriving symmetric input-output tables.
