Monetary economy
Mohammad Mahdi Asgari Dehabadi; Ali Nassiri Aghdam; Hossein Doroodian; Parisa Mohajeri
Abstract
Iran's economy has faced many problems in recent years. the government's indebtedness to contractors stands as one of Iran's most pressing issues which has had bad effects on the monetary and banking system of Iran. This predicament has precipitated several adverse consequences, including the cost of ...
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Iran's economy has faced many problems in recent years. the government's indebtedness to contractors stands as one of Iran's most pressing issues which has had bad effects on the monetary and banking system of Iran. This predicament has precipitated several adverse consequences, including the cost of funds for banks, elevated interest rates on loans, an unrestrained surge in the money supply, and a diminishing capacity for banks to extend loans. To tackle this challenge, some economists with emphasis on endogenous nature of money, propose a remedy grounded in credit easing. this approach entails settling the government's debt to contractors by effecting adjustments on the asset side of the Central Bank's balance sheet. However, the practical execution of this policy hinges on the utilization of Central Bank resources, raising concerns about a sudden surge in money supply and potential adverse impacts on other economic variables, notably inflation. This has cast doubt on the feasibility of implementing such a strategy. In this research, we delved into the fundamental principles and prerequisites of adopting the credit easing policy in Iran. To evaluate the potential outcomes of implementing this policy, we employ the stock flow consistent model. Our findings reveal that settling the government's debt to banks through the utilization of Central Bank resources leads to an expansion in the monetary base and money supply, an upswing in real GDP, and a decrease in both inflation and interest rates when juxtaposed with the baseline scenario.
Jalal Montazeri Shoorekchali
Abstract
Financial crises, along with the negative and destructive effects of the debt stocks on the economy of countries with the national debt, have caused the "economic effects of the public debt stocks problem," and has become a controversial issue in the public sector economics literature. Using a Smooth ...
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Financial crises, along with the negative and destructive effects of the debt stocks on the economy of countries with the national debt, have caused the "economic effects of the public debt stocks problem," and has become a controversial issue in the public sector economics literature. Using a Smooth Transition Regression (STR) model, this paper investigates the asymmetric impact of the size of government debt - the ratio of government debt to the central bank to GDP - on economic growth in Iran during 1973-2017. The findings showed that the size of government debt to the central bank in a two-regime structure, with two thresholds, affected economic growth by 4.40% and 28.98%. At low levels of debt (years that the size of government debt to central bank is less than 4.4%) and high levels of debt (years that the size of government debt to central bank is greater than 4.40% and less than 28.98%), government borrowing from the central bank has had a negative and positive effect on economic growth, respectively. Finally, contrary to the expectations, during the period 1980-1991 (years that the size of government debt to the central bank is greater than 28.98%), the amount of government debt to the central bank has positively affected economic growth. This positive impact can be due to the specific features of the revolution and war periods in Iran, such as reducing crowding-out effects, the significant gap between real and potential production, and the more efficient cost management during years.
