Monetary & Financial Economics

Abstract Abstract:
In today's world, climate change and the environmental consequences of greenhouse gas emissions represent one of the most critical global challenges. Financial development, as a key factor, can play a significant role in reducing these emissions and serve as a powerful tool to combat climate change and mitigate adverse environmental effects. The substantial increase in energy consumption has led to environmental degradation in BRICS countries—economies that have experienced rapid industrial growth due to their strong economic structures. This study aims to investigate the relationship between financial development and CO₂ emissions in BRICS countries using panel regression over the period 1990–2023. The findings indicate that financial development (FE), foreign direct investment (FDI), economic growth, and industrialization have a positive and significant relationship with carbon dioxide emissions. This suggests that the current trajectory of financial development and investment attraction in these countries, driven by a focus on polluting industries, has exacerbated emissions. In contrast, energy consumption exhibits a negative and significant impact on emissions. The effects of inflation and innovation on emissions were not statistically significant. Accordingly, it is recommended that BRICS countries reform their financial policies and revise their investment attraction models toward green development and clean technologies. Such measures can help mitigate further environmental degradation while maintaining economic growth.

Abstract Governments are constantly influenced by political parties with differing orientations, which creates the potential for political misuse of monetary policy. Such interference can disrupt monetary equilibrium, harm the real sector of the economy, and ultimately lead to economic fluctuations. Consequently, central bank independence is widely recognized in the economic literature as one of the most important institutional tools for controlling inflation. This study investigates the impact of central bank independence on inflation in selected oil-exporting countries over the period 2000–2023, while considering the role of institutional factors and financial systems. To address potential endogeneity concerns, the two-stage least squares (2SLS) method is employed. The findings indicate that central bank independence and institutional quality play a pivotal role in reducing inflation; however, the interaction between institutional and financial variables can generate complex and sometimes nonlinear effects. Accordingly, strengthening the practical and legal independence of central banks is recommended to curb inflation and enhance macroeconomic stability.

Abstract OPEC countries face a dual challenge of sustaining oil-led economic growth while mitigating environmental degradation. This study investigates the dynamic effects of monetary and fiscal policies on per capita carbon dioxide (CO2) emissions in 15 OPEC member states over the period 1995–2024. Utilizing a Panel Autoregressive Distributed Lag (Panel ARDL) framework, the Pooled Mean Group (PMG) estimator was applied after confirming variables’ stationarity, cross-sectional dependence, and panel cointegration. The short-run empirical findings reveal that macroeconomic policy instruments do not exert a statistically significant impact on carbon emissions; instead, short-term emissions are primarily driven by structural factors such as population growth and per capita income. In the long run, however, government expenditures (fiscal expansion) and exchange rates exhibit a significant mitigating effect on CO2emissions. Conversely, monetary expansion (money supply) and population size act as key drivers of environmental degradation in the long run. Additionally, the Environmental Kuznets Curve (EKC) hypothesis is validated for the sampled countries. The error correction term (ECM=-0.12) indicates a relatively slow adjustment rate toward the long-run equilibrium. Policy implications suggest that OPEC policymakers should align monetary and fiscal frameworks by implementing green budgeting, directing bank credit toward low-carbon projects, and regulating liquidity to facilitate the energy transition.

Abstract The present study provides new insights into the relationship between monetary policy and uncertainty in the Iranian economy for the monthly period from April 2010 to March 2024. For this purpose, first, the uncertainty of the economy as a whole is calculated with a stochastic volatility model based on conditional fluctuations of the variables of the inflation rate, exchange rate, and production growth rate. Wavelets are then used to examine how the relationship changes over time and at different frequencies. The key findings of this analysis showed that the relationship between monetary policy and economic uncertainty in Iran significantly depends on the time horizon. In the short term (2-12 months), a positive and significant regression coefficient of 0.32 was observed, indicating a positive and significant relationship between increased liquidity and economic uncertainty. This relationship is weaker but still significant in the medium term (1-3 years) with a coefficient of 0.18 and appears stronger than other horizons in the long term (more than 3 years) with a coefficient of 0.41. These findings are consistent with theories of structural inflation in developing economies, which show that in these economies, expansionary monetary policies are associated with increased economic uncertainty not only in the short run but also in the long run. Furthermore, the results indicate that the relationship between monetary policy and economic uncertainty in Iran strongly depends on economic and political conditions. Under sanctions, this relationship is stronger and more stable. The findings emphasize that the causality and nature of the relationship between liquidity and macroeconomic uncertainty vary over time and at different frequencies.

Abstract The structural dependence of the Iranian economy on oil revenues, along with exposure to international sanctions and severe exchange rate fluctuations, has intensified instability and invisible linkages among its macro markets. This study aims to analyze the dynamic and asymmetric transmission of volatility among three markets—monetary base, oil prices, and exchange rates—using the advanced Dynamic Conditional Correlation (DCC-GARCH) model over the quarterly period from 1991 to 2023. To accommodate extreme shocks and asymmetric effects, the Student's t-distribution and the GJR-GARCH specification are employed.
The findings reveal a very strong and stable network of volatility spillovers among these three markets, with their dependence structure exhibiting high persistence. At the intra-market level, negative exchange rate shocks have a far stronger impact on market volatility than positive shocks, whereas positive oil price shocks increase volatility, indicating an oil revenue-liquidity mechanism. Structural shocks resulting from severe sanctions have significantly altered the pattern of these spillovers. Meanwhile, the instantaneous and contemporaneous correlations among the markets are weak and insignificant, which may reflect extensive policy interventions and non-price mechanisms in the Iranian economy.
These results confirm the existence of a deep non-linear linkage through the risk channel, despite the absence of a simple linear relationship between returns. Based on the findings, operational policy solutions such as establishing an exchange rate stabilization fund with an oil-linked rule and implementing a conditional rule for managing the monetary base in response to exchange rate shocks are proposed.

Abstract Abstract
Gasoline price reform in Iran, due to its economic, political, and social dimensions, has always been one of the most challenging economic policies. The aim of this study is to identify the best scenario for gasoline price reform to minimize the negative effects on gross domestic product (GDP), investment, and employment in Iran. For this purpose, 18 different scenarios were simulated in three dimensions: the type of subsidy elimination (over three-, five-, and ten-year periods), the type of support compensation (cash or quota), and the level of support coverage (all deciles, low- and middle-income deciles, and only low-income deciles) using the Recursive Dynamic Computable General Equilibrium (RDCGE) model and data from the 2016 Social Accounting Matrix of the Central Bank of Iran. The results showed that the optimal scenario is the gradual elimination of gasoline subsidies over a ten-year period (bringing the price from $0.05 to $1 per liter), cash support compensation (equivalent to a monthly quota of 60 liters of gasoline), and support coverage for low- and middle-income deciles. In this scenario, the gasoline price increases by 34.93 percent annually, and not only do production, investment, and employment not decrease, but they increase by 2.18, 1.02, and 1.24 percent, respectively. Sensitivity analysis regarding key model parameters confirmed the robustness of the results. The findings indicate that the speed of subsidy elimination alone is not sufficient; rather, the method of support compensation and precise targeting of deciles play a pivotal role in the policy's success.

Abstract This article, entitled “Investigating the Impact of Business Cycles on Stock Market Returns with Emphasis on the Automotive Group Using a Time-Varying Coefficients Approach and the TVP-VAR Model,” examines the dynamic relationship between business cycles (periods of economic boom and recession) and the returns of automotive group stocks in the Iranian economy. Given the severe economic fluctuations in Iran driven by sanctions, expansionary monetary policies, chronic inflation, and exchange-rate jumps, the need to investigate these relationships in a time-varying manner has become increasingly evident. To test the hypotheses, time-series data covering the solar years 1380 to 1404 and a Bayesian TVP-VAR model were employed. Key variables included automotive group stock returns, liquidity growth, inflation, the exchange rate, the interest rate, trading volume, and business-cycle indicators. The results showed that the effect of liquidity growth on automotive group returns is predominantly positive but unstable and is stronger during boom periods. Inflation exerts a significant and increasing negative impact that intensifies during deep recessions. Exchange-rate shocks also produce dual (both positive and negative) responses. By presenting impulse-response functions and time-varying coefficients, the TVP-VAR model clearly revealed nonlinear patterns that depend on the business cycle.

Abstract Currently, the Iranian economy is facing significant challenges due to uncertainties arising from severe exchange rate fluctuations. Therefore, implementing appropriate monetary policies may lead to a reduction in uncertainties and their consequences in the Iranian economy. The aim of this study is to investigate the effectiveness of monetary policy on reducing economic uncertainty arising from exchange rate fluctuations in high and low exchange rate regimes with monthly data from April 2012 to March 2013 using a threshold approach. The results showed that contractionary monetary policy using the interbank interest rate instrument, especially in a high exchange rate regime, significantly reduces economic uncertainties caused by exchange rate fluctuations. Threshold regression estimation showed that expansionary monetary policy (by increasing liquidity) does not have a significant effect on uncertainty in low exchange rate conditions, but it increases uncertainty in high exchange rate conditions. The results of this study emphasize that rising inflation and gold prices are two important factors in increasing economic uncertainties caused by exchange rate instability. Policy implications of this study may contribute to the effectiveness of monetary policy tools in different exchange rate regimes in reducing economic uncertainties.

Abstract This study examines the impact of corporate governance quality on the resilience of firms listed on the Tehran Stock Exchange against economic shocks. Using a balanced panel dataset of 150 companies over the period 2011–2024 — encompassing shocks such as the COVID-19 pandemic, severe exchange rate fluctuations, and sanctions — and employing the Generalized Method of Moments (GMM) to address endogeneity and dynamic effects, the results indicate that board independence and the overall corporate governance score have a significant positive effect on a composite resilience index (comprising recovery speed, profitability volatility, and bankruptcy probability). Conversely, high ownership concentration and high financial leverage exert a significant negative effect on resilience. The economic crisis index also directly reduces resilience; however, strong corporate governance substantially moderates this negative effect. The primary contribution of this study lies in the multidimensional measurement of corporate resilience and the examination of corporate governance mechanisms in reducing the vulnerability of Iranian firms to economic shocks. An additional innovation is the application of the GMM model within the context of Iran’s emerging market, combined with a multidimensional resilience index. The findings emphasize that strengthening corporate governance mechanisms can serve as a key strategy for enhancing firms’ resistance to economic shocks.

Abstract This study examines the effect of banking system financial soundness on inflation stability, with an emphasis on the moderating role of monetary policy, in 10 high-inflation countries over the period 2000–2025. The main objective is to investigate whether the financial soundness of banks affects inflation stability and whether the magnitude of this effect is influenced by the stance of monetary policy. For this purpose, inflation stability is considered the dependent variable, while the financial soundness index, monetary policy index, and the interaction between these two variables are considered the main explanatory variables. In addition, the exchange rate, government size, fiscal deficit, economic growth, trade openness, and domestic credit to the private sector are included as control variables. Given the presence of heterogeneity, outliers, and severe inflationary shocks in the countries under investigation, the model is estimated using robust regression. The results show that the financial soundness index, monetary policy, and the interaction term between financial soundness and monetary policy are statistically significant at the 5% level. In addition, the exchange rate, government size, fiscal deficit, economic growth, and private sector credit have significant effects, whereas the effect of trade openness is statistically insignificant. The findings indicate that the effect of financial soundness on inflation stability depends on monetary policy conditions.

Abstract The aim of this paper was to examine the impact of financial inclusion on poverty reduction in developing countries. Financial inclusion is the access and use of affordable and quality financial products and services by individuals and firms, including payments, bank accounts, credit, and insurance, that are provided in a sustainable and responsible manner. On the other hand, unequal access to financial resources can be a significant barrier to accessing and using economic opportunities and reduce entrepreneurial activity, which is an important and decisive factor in economic success. In fact, easy access and cost-free use of financial services can help the poor to build capital and assets so that they can better protect themselves in adverse economic conditions. This study used statistical data from 43 developing countries for the period 2004-2025 and the panel vector autoregression method. The results of this study showed that the shock from the financial inclusion index in developing countries led to an improvement in income distribution and a reduction in poverty and inequality. In addition, the model also showed that the shock from the financial inclusion index led to an improvement in income distribution, although the effect of this shock was weak in developing countries.

Abstract Although various studies have examined the economic effects of money laundering, there is a lack of studies, especially in the country, on the impact of shocks resulting from economic sanctions on money laundering. Therefore, in this study, the impact of negative shocks of economic sanctions on the volume of money laundering in Iran was investigated using a structural vector autoregression (SVAR) model during the period 1994-1999.
The results showed that shocks of -5, -10 and -20 percent in crude oil export revenue increase the volume of money laundering in Iran by a maximum of 3.66, 4.67 and 7.63 percent, respectively. Also, shocks of -5, -10 and -20 percent in non-oil exports increase the volume of money laundering in Iran by a maximum of 2.24, 3.26 and 6.24 percent, respectively. In addition, shocks of -5, -10 and -20 percent in capital and intermediate goods increase the volume of money laundering in Iran by a maximum of 1.11, 2.12 and 5.22 percent, respectively. On the other hand, shocks of +5, +10 and +20 percent in exchange rate increase the volume of money laundering in Iran by a maximum of 3.01, 5.72 and 12.97 percent, respectively. Due to economic sanctions, economic growth, decline, exchange rate fluctuations, increases, inflation rates, increases and income inequality also increases, money laundering grows as a natural reaction of the informal market.
Therefore, solutions must be simultaneously economic (controlling exchange rates and inflation), social (reducing income inequality), institutional (regulations and supervision), and technological (artificial intelligence and blockchain). Only with this combination can the volume of money laundering be reduced and public trust and sound investment be strengthened.