مهدی صارم

In this study, we design a DSGE model for Iranian economy in which the government has an active policy for financing budget deficit. Quarterly data in 1388 – 1399 is employed for estimation of structural parameters, where, the diagnosis statistics of model confirm the reliability of results. Using estimated parameters, we analyzed which tool of either policy rate or money base growth rate will be selected by the central bank. To this purpose, the optimal monetary policy is derived for these tools. The simulation results from one percentage point growth in interest rate and one percentage point decline in money base growth rate reveal that using policy rate can control inflation rate and nominal exchange rate more effectively than money base growth rate. In addition, implementing a contractionary policy in the form of policy rate rule reduces private consumption and economic growth less than in the form of money base rule. In other words, the policy rate tool is more efficient than money base rule, since its control of inflation rate and exchange rate is more efficient and has fewer negative effects on economic growth and private consumption.

Banks, as the center of financial and payment systems, play a pivotal role in providing the resources needed for economic sectors by attracting and allocating resources in the economy. Therefore, the efficiency of the banking sector is considered as a key factor in economic growth. In addition, due to the banking-centric nature of the financing system in Iran, banks provide a significant part of the need for financial resources of manufacturing companies. So, shocks in financial markets affect the performance of firms by affecting the resources available to firms and, consequently, their financial expenditures, thereby affecting the real sector of the economy. The performance of banks is, in turn, influenced by the macroeconomic environment and the decisions of the central bank as a monetary policy maker. Therefore, it is very important to study the effects of the central bank policies and the change in the behavior of banks as financial intermediaries on different sectors of the economy. The purpose of this article is to investigate the effect of central bank policies on macroeconomic variables with an emphasis on the behavior of banks as the main suppliers of capital and liquidity for the manufacturing sector.

In this article, the economic conditions of Iran are simulated in a dynamic stochastic general equilibrium model using seasonal information from 1989 to 2018, and the effects of monetary, credit and real shocks on the country's economy are analyzed. The model used for this purpose covers four parts including production sector, household sector, bank sector and central bank and government sector. At the beginning of the period, the household is the supplier of labor and keeps its resources either as a deposit with the bank or as cash. The production sector consists of three parts including the entrepreneur, the producer of capital goods and the producer of the final goods (firm). The entrepreneur is the supplier of capital, and the producer of capital uses the capital purchased from the entrepreneur and his own capital to generate new capital and, again at the end of the period, to sell the new produced capital to the entrepreneur. In this model, banks use household deposits to provide facilities to enterprises; this loan is used to produce goods. So, the bank's major task is to provide working capital for the production units and the resources required by the entrepreneur at the interest rates which are determined in advance. According to the macroeconomic conditions of Iran, these interest rates are determined by the Monetary and Credit Council in an orderly manner and target the tools of the central bank. An important point about the assumptions of this model is that, unlike most similar studies, the entrepreneur who receives the credits from banks may go bankrupt and be unable to repay the received money. This assumption is taken into account in the model, as observed in Iran’s economy. In this study, in order to design the model, the research works of Bernanke et al. (1999), Smith et al. (2007) and Boys and Zhou (2016) have been used.

Based on the results obtained from the model, the occurrence of a negative credit shock will reduce production, consumption and investment. It can also increase the interest rate on credits, raise the inflation and reduce working hours. Moreover, in case of contractionary monetary policies, production, consumption, investment, the number of working hours of the labor force and inflation can decrease while the interest on credits increases. The remarkable result about the implementation of contractionary monetary policies is that, after the implementation of this policy, the amount of credits granted by banks experiences fluctuations; it decreases at first, then increases again over a period of time, and then the effects of the shock gradually disappear.

According to the results of the model, a contractionary policy in the form of reducing the amount of credits not only has a negative effect on production and consumption but also increases inflation. In other words, reduction of the level of aggregate demand as a result of a reduction in credits does not lead to the control of inflation. This is due to the high dependence of Iran's economy on bank credit financing. Therefore, it is suggested that the central bank not control macroeconomic variables by controlling banks' interest rates and loans, because it will not have desirable results. Instead, it is recommended that the central bank direct macroeconomic variables by controlling the policy rate in the interbank market and changing the volume of bank reserves.

This paper models the assets and liabilities of the Social Security Fund in Iran. The fund's financial position in practice is influenced by the population dynamics between two generations of employed and retired people, focusing on four important characteristics: the premium rate and pension benefits of the working and retired generation, the two-generation employed and retired population pyramid, the employment generation period and the retirement period. In this study, an overlapping generation model is designed to show the dependence of the stability of the fund on the generational population and the transitions between generations taking into account such characteristics. The simulation results show that although the ratio of assets to liabilities can be potentially high, the gap between assets and liabilities of the fund is so high that any of the proposed policies alone cannot close the gap and ensure its stability. Therefore, policy implication s to stabilize the fund's assets and liabilities can be proposed in two scenarios. The similarity of both scenarios is that the government first pays its share of the insurance and secondly increases the premium rate to 10%, with the retirement pension being reduced by 50% in the first scenario and 10% in the second scenario. The results of the analysis show that the improvement of the fund stabilization is mainly dependent on the decrease in retirement pension, which can be stabilized in a certain time horizon.

In order to facilitate transactions among banks, the interbank market has been established in Iran since 2008. The primary objective of this market is to eliminate banking system liquidity deficiencies at a rate chosen by the Central bank of Iran. The importance of this rate is that it affects market interest rates through its effects on banks’ balance sheets. Banks’ balance sheets are also influenced by banking regulation, such as Basel regulations; thus, this study was aimed to investigate the effects of the interbank market in Iran by imposing Basel III regulations on the banking system. For this purpose, a dynamic stochastic general equilibrium model (DSGE) was designed that included the interbank market. The structural parameters of the designed model were estimated using the Bayesian method and the quarterly data on the period 2008-2015. Afterward, the effect of a positive interbank innovation on the economy’s dynamics was examined. The results showed that an increase in the interbank rate led to instability in the economy. It was concluded that an increase in the liquidity and capital adequacy requirement, as mentioned in the Basel III regulations, would reduce the negative effects of interbank shocks on macroeconomic variables and the economy would naturally become more stable.

The aim of this paper is to investigate the existence of the new non-Ricardian regime policy in Iranian economy. We detected signs of the non-Ricardian regime from quarterly data of 1369 to 1391. To investigate further a dynamic stochastic general equilibrium model is designed to estimate the fiscal and monetary parameters using a Bayesian approach. Our results indicated a passive monetary policy and an active fiscal policy presence which are evidence of a new non-Ricardian regime. To prove the robustness of our results, criteria such as posterior odds ratio and impulse response functions are used in this research. Based on posterior odds ratio, Non-Ricardian policy has more ability to describe data than Ricardian policy. According to the impulse response function, in reaction to positive government debt shocks, Non-Ricardian policy implementation is more compatible with the behavior of the Iranian economy than the other.

This paper has investigated the effects of structural and exchange shocks on the macroeconomic variables by using a DSGE model. In macroeconomic dynamics, three assumptions had made. First, economy faces nominal rigidities, second, because of fiscal dominance in Iran, defining monetary policy is not possible, and third, Iran economy is an small open economy that its macro variables have been affected by exchange shocks. In this way and by using quarterly data in the 1369-91 period, model parameters has estimated and the results show the effectiveness of real exchange rate, law of one price gap, and nominal exchange rate on inflation and economic growth. Moreover, based on simulation results, exchange rate fluctuations cause change in the equilibrium path of inflation and output.

This paper has compared welfare loss from seignorage tax and consumption tax. Seignorage tax is in the form of higher money creation and transferring purchasing power from people to government and consumption tax increases level of expenditure that reduces economic welfare. In this study، by using an endogenous growth model، a structure is prepared to compare and evaluating welfare effects of these two tax policies، in which، two criteria، changes in consumption level and leisure time are used. Based on quarterly time series data for the period of 1369-1390، the results show that in the long run، seignorage tax compared with consumption tax causes more reduction in consumption and economic welfare. Moreover، model simulation shows that seignorage tax leads to more volatility in variables and has more welfare changes.

Hybrid sticky price model is one of the main models، used to analyze the Persistencyand inertia in inflation. In recent years، Mankiw and Reis (2002)، s sticky information model، has also been considered by many economic analysts. So، in present paper، we try to investigate and compare these models by using a Dynamic Stochastic General Equilibrium (DSGE) framework، based on new Keynesian structure. For this purpose، the data 1370:1-1391:4 Iran''s economy has been used. The results of the estimated coefficient of inflation inertia indicate، inflation inertia in the model of hybrid price stickiness is more than information stickiness model. Inflation Persistency analysis is based on comparing the autocorrelation function of the original data and simulated data، show that hybrid price stickiness is better thaninformation stickiness model shows inflation persistence. It seems to be a hybrid price stickiness model more consistent with the economy of Iran and economic policy makers can be more confident of the results of this model to use them.

Several ways can be used to modeling price adjustment, based on different theories. Due to these differences in assumptions and bases, analyzing monetary policy effects under each approach is quite different. Thereby, having a deep analysis of monetary policy requires a price adjustment model that consistent with economic conditions of the country. This paper, by introducing four model, sticky price (standard new Keynesian model), backward looking model (Phillips curve with adaptive expectations), hybrid new Keynesian and sticky information, shows that with respect to Iran economic data, sticky information model, in describing monetary policy effects, has better performance compare to other models. Moreover, simulation of monetary policy shocks shows that the behavior of inflation and output gap under sticky information model has more consistency with actual effects of monetary policy.

In this paper، based on a new Keynesian structure، we have analyzed monetary policy response to exchange rate volatilities in Iran. For this purpose، first، exchange rate derived from equilibrium condition in exchange market and then two different models have been estimated. Assumption on the first model is that central bank responses to exchange rate volatilities and the assumption on the second model is that central bank does not response. To opt proper model، Bayes factor and Likelihood ratio tests have been used. The results show that، first model is a better model in describing central bank’s behaviour. In other words، central bank has responded to exchange rate volatilities its coefficient in the monetary rule is -0. 12. So، when central bank faces with an exchange rate shock، chooses contractionary monetary policy. This result is consistent with the results from model simulations.

In this paper، by using dynamic stochastic general equilibrium، optimal monetary rule derived for central bank of Iran. Monetary transmission mechanism of the model includes four equations، aggregate demand، aggregate supply، oil price and Taylor rule. We have proved that dynamic structure of aggregate demand relation، regarding monetary inflation in Iran، is a function of money growth rate. With this assumption that the goal of central bank is to pursue target inflation rate and output gap، and subject to monetary transmission mechanism، optimal rule of monetary policy obtained for Iran economy that is a function of inflation gap، output gap and oil income growth rate. Estimation results show that money growth rate has no effect on output gap and fully reflexes in inflation expectation. Moreover، one percent increase in oil income causes four percent increase in inflation rate.