Monetary economy
Hooman Karami Khoramabadi; Alireza Erfani; Hosein Tavakolian
Abstract
This paper investigates the effectiveness of monetary policy in recession and expansion periods of business cycles in Iran. It uses the distribution of price changes over time using micro-data of producer and consumer price indices from March 2004 to March 2007 and March 1990 to March 2017. Results show ...
Read More
This paper investigates the effectiveness of monetary policy in recession and expansion periods of business cycles in Iran. It uses the distribution of price changes over time using micro-data of producer and consumer price indices from March 2004 to March 2007 and March 1990 to March 2017. Results show that the observed distribution price changes at the producer and consumer levels change significantly over time. Whereas price flexibility (or, similarly, price stickiness) is closely related to the impact of monetary policy, the variable distribution of price changes over time suggests that the effectiveness of monetary policy should also change over time. We estimated the related parameters using the Ss model and the observed facts from the distribution of price changes, the price flexibility index, which shows how prices react to a monetary policy shock. The correlation coefficient and regression analysis results showed that the price flexibility index is counter-cyclical; this means that during periods of economic recession, the index of price flexibility increases. Therefore, the impact of monetary policy on real output decreases. However, during periods of economic expansion, the impact of monetary policy increases.
Hossein Tavakolian; Ahmadreza Jalali Naeeni
Abstract
Macroeconomic equilibrium depends on both current and future behaviour of the monetary authority. Policymaker can manage economic agents' expectation by determining a specific rule in monetary policy and commit to it. There is a vast literature on central banks incentive in instrument and target choice ...
Read More
Macroeconomic equilibrium depends on both current and future behaviour of the monetary authority. Policymaker can manage economic agents' expectation by determining a specific rule in monetary policy and commit to it. There is a vast literature on central banks incentive in instrument and target choice in monetary economics. According to this literature, this paper studies discretionary and Ramsey optimal monetary policies for Iran in a small open economy dynamic stochastic general equilibrium model which is modified to capture the properties of the economy of Iran. The empirical results show that if there is a commitment to targets, monetary authority can control inflation. However, if the authority implements discretionary monetary policy, despite having two policy instruments of monetary base growth rate and nominal exchange rate depreciation, central bank could not manage expectations and would face inflation bias and higher volatilities.
