Investigation the Effect of Open Market Operations on the Stability of Macroeconomic Variables in Iran, Emphasizing the Sanctions Conditions

Achieving macroeconomic stability is one of the main issues of policymakers in developed and developing economies, especially in Iran. In order to create stability in the economy, one of the important and efficient tools are the monetary policies that are used in direct and indirect ways by the central bank. Open market operation as an indirect tool of monetary policy is done in most advanced countries that have structured secondary markets related to government bonds through the entry and exit of the central bank in this market. The preparations for the operation of the open market in Iran's economy have been prepared since 2017 and it has been implemented since the beginning of 2019. In the market operations of the Central Bank of the Islamic Republic of Iran, it can buy and sell certain securities, and other banks in Iran can also buy and sell these securities in cooperation with the Central Bank. Considering that the main tool of open market operations is the interest rate, it can be stated that the main objectives of the banking open market operations are the management of the short-term interest rates of the interbank markets in order to balance inflation. Of course, it should be noted that the economic conditions in Iran are different from other countries, because Iran has faced all kinds of economic and non-economic sanctions by Western countries, and it is necessary to consider this influential variable as a quantitative index and measure its effect in the model. Therefore, it is necessary to see the effectiveness of the mentioned operations in the conditions of sanctions. On the other hand, in spite of the extensive exploration regarding the issue of the effectiveness of open market operations, no study with this title has been carried out in a quantitative manner. Therefore, in this paper, the effect of open market operations on variables such as inflation, gross domestic product, exchange rate and interest rate during the period of 1392 to 1400 with seasonal frequency is investigated with the Eviuse software and by using the ARDLmodel.

THEORETICAL FRAMEWORK:

In the implementation of monetary policy, the central bank can directly use its regulatory power or indirectly influence the conditions of the money market as a high-powered money issuer (bill and currency in circulation and deposits with the central bank). Accordingly, two types of monetary policy tools can be distinguished, which are called direct (not relying on market conditions) and indirect (based on market conditions) monetary policy tools.

In order to investigate the effect of open market operations on four key macroeconomic variables, it is necessary to specify four separate equations and estimate each one separately by using the ARDL method. Consideration that the data is seasonal, it is necessary to check the reliability of the variables and the sum of the equations in order to examine the long-term relationship and the convergence of the variables towards the equilibrium value.

The important results obtained in this research is that the sign of the open market operation coefficient is contrary to economic theories, which indicates the inefficiency of the open market operation under sanctions in Iran, and these results are completely consistent with the official evidence and statistics of the relevant centers.

 CONCLUSIONS & SUGGESTIONS:

In the current situation where Iran's economy is suffering from stagnation and government budget deficit, it seems that open market operation has found the function of financing for the government and has no effect on controlling the interest rate and consequently the inflation rate. In fact, the government issued bonds without consideration and from the very beginning it has disrupted and rendered useless the operation of the open market operation tool as a tool of the new monetary policy procedure in line with inflation targeting. On the other hand, the creation of open market operations and the issuance of bonds will cause global fluctuations or external pressures to be transferred into the country in the form of clear economic effects and create another vulnerable point against sanctions in Iran's economy. In such a way that by imposing severe sanctions and even by playing with the psychological atmosphere, the price of government bonds in the market will change and fall, which can cause the discrediting of government bonds and a blow to the financing of government activities. Therefore, it is suggested to consider a sustainable and long-term solution to the government's revenue generation, which includes tax revenues.