Samira Noori; Sohrab Delangizan; Kiomars Sohaili
Abstract
INTRODUCTION
Today, new financial technologies (fin techs) have caused extensive changes in the banking industry. In recent years, new financial technologies have become the most popular term in the word of economic markets Investors in these emerging markets are looking ...
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INTRODUCTION
Today, new financial technologies (fin techs) have caused extensive changes in the banking industry. In recent years, new financial technologies have become the most popular term in the word of economic markets Investors in these emerging markets are looking to innovate to improve their position. Fintech includes both digital innovations and technology-based business model innovations in the financial sector. Such innovations can disrupt existing industry structures. Fintech development has increased the competitiveness of commercial banks, as digital technologies play an important role in improving the efficiency of services provided by banks. and other financial institutions have played to small companies and private companies. Others believe that the most important question is when these innovations in fintech will affect the implementation and formulation of macroeconomic policies. Therefore, the new financial technology and its effect on the monetary field, its concepts and its nature need to be investigated and explained. In this research, the role of modern financial technology on Monetary Base Usages in Iran will be examined, and in this regard, in order to check the validity of the research hypotheses, the econometric models will be used the data during the period of 2013-2019. This model is estimated by ARDL and OLS approach.
2- THEORETICAL FRAMEWORK
Electronic money can be replaced central bank money by in terms of its features. The replacement of central bank money will affect it the most due to the relatively larger volume of banknotes and coins in the definition of M1 money. The narrow definition of M1 money includes notes and cash in the hands of the people (C) plus demand deposits (D). Bank cards can increase the volume of money by increasing liquidity and monetary base. According to the theories of monetarists, the increase in money in turn causes an increase in inflation, because with an independent increase in the amount of money, the amount of money paid and the amount of money demanded collides, and as a result, it faces a surplus of money, which causes it to increase. Lack of sufficient supply of goods causes prices to rise.
3- METHODOLOGY
The patterns examined in this research are as follows The model introduced to evaluate the estimation of modern financial technology on the speed of in come velocity:
LVt=α0+α1LVt-1+α2LFINTECHt+α3LCUt+α4LM1t+Ut (1)
The model introduced to check the estimation of the new financial
technology on the money multiplier:
Lmt=α0+α1TRENDt+Ut (2)
The introduced model for evaluation of the estimation of new financial technology on money supply:
LM1t=α0+α1LM1t-1+α2LFINTECHt+α3Lmt+α4LCUt+α5LRGDPt+Ut (3)
And at the end, the model introduced to investigate the role of modern financial technology on monetary base usages:
LMBt=α0+α1LMBt-1+α2LFINTECHt+α3Lmt+α4LRGDPt+α5LRRt+Ut (4)
4- RESULTS & DISCUSSION
The results of the models show that modern financial technology (the sum of mobile and internet transactions) has a positive and significant effect on the money multiplier in Iran, because in the era of modern financial technology, the monetary money multiplier trend has been upward. In examination of the velocity of money, the results show that modern financial technology and money supply have a positive and significant effect on the velocity of money in Iran. but the volume of banknotes and coins in the hands of the people has a negative and significant effect on the velocity of money in Iran, because the increase in the volume of banknotes and cash in people's hands increases the ratio of banknotes and cash to deposits, which in itself leads to a decrease in the velocity of money. In examining the money supply pattern, the results showed that the new financial technology, money multiplier, real gross product and the number of banknotes and coins in the hands of the people have a positive and significant effect on the money supply in Iran. In examining the model of monetary base usages, the results indicated that modern financial technology, monetary multiplier and real gross output have a negative and significant effect on monetary base usages in Iran, but the volume of legal reserves with the central bank has a positive and significant effect on monetary base usages.
5- CONCLUSIONS & SUGGESTIONS
The results show that the emergence of new financial technologies increases income velocity, money multiplier and supply of money and on the other hand leads to a decrease monetary base usage. The expansion of modern financial technologies is necessary due to the reduction of transaction costs, the increase in the speed of transactions, the facilitation of the implementation of banking services and the increase of competition between knowledge-based companies, and the basis for its expansion must be provided.
samira zareinezhad; kiomars sohaili; Shahram Fattahi
Abstract
Extended abstract
1- INTRODUCTIO
In order to have an effective monetary policy, it is necessary for the monetary authorities to have sufficient information about the effect, the channels of start the effect, the duration of the effect and the time when the effect of the monetary policy effect peaks. ...
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Extended abstract
1- INTRODUCTIO
In order to have an effective monetary policy, it is necessary for the monetary authorities to have sufficient information about the effect, the channels of start the effect, the duration of the effect and the time when the effect of the monetary policy effect peaks. Therefore, it is necessary to examine the intersection of credit channel, housing price channel, stock price channel and exchange rate channel in the nonlinear transmission mechanism of monetary policy on inflation in the Iranian economy. It has a structure in different regimes and the data of the central bank are used during the years1978-2017.
2- THEORETICAL FRAMEWORK
Monetary policy is a set of actions that the central bank (monetary authority) through monetary instruments affect many economic goals such as price stability, exit from recession, stimulation of economic growth and increasing employment. This effect of monetary policy on the set goals and improvement in macroeconomic performance will indicate the efficiency of monetary policy. Central banks, as monetary policy makers in most countries of the world, seek the effectiveness of their monetary policies and to better understand the structures governing their economic environment in order to implement appropriate and timely policies and put economic variables on the path of growth and development. In this regard, how to formulate monetary policy and use monetary instruments is of particular importance in macroeconomics.
3- METHODOLOGY
A novel feature of the Markov switching model is that the regime change mechanism in this model depends on a status variable. in other words, the recent value of the state variable just depends on the its value in previous periods. to calculate the unconditional probabilities in a model that include two regimes indicate the probability of being in each regime, we can consider the possibility of changing the parameters in different regimes, the linear VAR model transforme the MSVAR model:
4- RESULTS &DISCUSSION
The role of the exchange rate channel in transferring money to inflation is positive in both regimes, meaning that it increases inflation. Given the structure of the Iranian economy and due to the high dependence on the price of finished products of domestic production to imported capital goods, it seems that the exchange rate will play a dominant role in determinayion the fate of inflation in the Iranian economy.
The role of housing price channel in transferring money to inflation in regime one increases inflation and negative effects on monetary policy in Iran’s economy, while in regime two, housing price channel in transferring money to inflation has played the largest share in reducing inflation.
The role of corporate credit channel in transferring money to inflation in the regime has a greater share than the second regime in transferring money to inflation. As a result, in economic policies, special attention should be paid to the inflationary effects if the granted facilities.
Stock price channel, support of the stock market should be one of the main priorities of officials. Because in the Iranian economy, which is always involved in high inflation, the stock market without inflationary effects can increase investment to increase production.
5-CONCLUSIONS & SUGGESTIONS
According to our results, it is suggested that to control inflation, policymakers should pay special attention to changes in currency price. At the same time, the policymaker can reduce the dependence of the country's industry on the import of capital goods and strengthen domestic financial instruments, such as the return on bank deposits, stock exchanges, etc. To strengthen other transfer channels so that it can rely on other channels to control inflation.
shabnam sadeghi nasab; Ali Falahati; Kiomars Sohaili
Abstract
Abstract
In recent decades one of the problems that Iran’s economy had been faced is the high growth rate of liquidity in the country. The high liquidity growth have had many consequences for Iran’s economy include high inflation, currency depreciation, high interest rates and those problems pointed ...
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Abstract
In recent decades one of the problems that Iran’s economy had been faced is the high growth rate of liquidity in the country. The high liquidity growth have had many consequences for Iran’s economy include high inflation, currency depreciation, high interest rates and those problems pointed out. Since the liquidity in Iran has always been a positive growth rate, in most studies, liquidity has been introduced as one of the factors affecting on inflation, the recent study aims is examine and analyze high liquidity in Iran experimentally and as well as finding the main components.
In this study has been used Vector Auto Regressive Model (var). For this purpose, by use from time series data for the 1359-1391, examine the model.
The results obtained from the study implies that, growth rate of exchange, inflation rate, interest rate,
have a Negative and significant relationship and also growth rate of budget deficit and growth rate of GDP , have a Positive and significant relationship with growth rate of liquidity. In result can said that money inside in Iran.
kiomars sohaili; Shahram Fattahi; Mahnaz Sorkhvandi
Abstract
Introduction
Monetary policies are one category of economic policies. Central banks use monetary policies for reducing inflation and for increasing production, employment and economic rate growth. Implementation of monetary policies can be done as a rule based monetary policy or as a discretionary ...
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Introduction
Monetary policies are one category of economic policies. Central banks use monetary policies for reducing inflation and for increasing production, employment and economic rate growth. Implementation of monetary policies can be done as a rule based monetary policy or as a discretionary monetary policy by central banks. Discussion of rule based monetary policy and discretionary monetary policy is of the most important issues of monetary policy making. In the case of discretionary monetary policies, central bank authorities react to their discretion in various economic conditions and based on the various situations of macroeconomic variables such as inflation and economic growth rates. But in the case of systematic monetary policies, central bank authorities will react to fluctuations in the economy, based on economic theory and monetary rules. Estimation of the amount of regulation or discretion of monetary policy is of special importance. Hence, in this study, the issue of rules versus discretion in monetary policies of Iran’s central bank will be examined.
Theoretical Frame work
Friedman's (1969) monetary rule is one of the monetary rules based on which regulatory based monetary policies are executed. Friedman's monetary rule was known as the main monetary rule for many years. Friedman believes that in situations where there is uncertainty about the duration of the effectiveness of monetary policy, the discretionary management of the supply of money can increase economic volatility, so he has proposed constant growth monetary rule. Other monetary rules whose application in Iran is investigated in this paper, are Taylor rule and the augmented Taylor rule. Taylor rule and the augmented Taylor rule are the most famous specified reaction function in the economic literature. According to the Taylor rule and the augmented Taylor rule, monetary policymakers react to deviations of output from the potential output and deviations of inflation from target inflation through change in the interest rate as a policy instrument. It is worth noting that due to the rule of interestfree banking system in Iran and due to Iran's central bank’s use of monetary based policies as an intermediate target in monetary policy, in this study, the growth rate of monetary base has been used instead of the interest rate.
Methodology
In order to examine the amount of regulation of the monetary policies of Iran Central Bank, the following two models were designed
The first model is specification of model for augmented Taylor rule under the first scenario for target inflation:
BM = C(1) + C(2)*BM(-1) + C(3)*GDPGAP + C(4)*INFGAP
The second model is specification of model for augmented Taylor rule under the second scenario for target inflation
BM = C(1) + C(2)* BM (1-) + C(3)*GDPGAP + C(4)*INFGAPT
In the above models, BM, BM (-1), GDPGAP and INFGAP are monetary base, the first lag of monetary base, deviations of the actual GDP from potential GDP and deviations of the inflation from target Inflation, respectively. Also, C(1), C(2), C(3) and C(4) are variable coefficients. The above models are estimated using the least squares regression during the period 1974-2013. The results of estimated models are reflected in the results and discussion part.
Results and Discussion
The results obtained from the estimated equations for central bank's response showed that the coefficient of policy variable of deviations of the actual GDP from potential GDP is significant. But the coefficient of deviations of the inflation from target inflation is not significant. Hence, findings of this research indicate that the behavior of the central bank of Iran with respect to deviations of the actual GDP from its potential is systematic and is based on rule than discretion. But the behavior of the central bank of Iran with respect to deviations of the inflation from target inflation was based on discretion and has not been systematic or rule based during the study period
Conclusion and Suggestions
Determination of monetary policies based on the discretion instead of determination of them based on rule, often cause inflation and economic instability in Iran. Therefore, in order to reduce social loss of intensifying inflation such as class discrimination and creating appropriate atmosphere for economic growth, the reaction functions of central bank of Iran in response to inflation deviations from its target and deviations of the actual GDP from its potential, is defined. Since lack of central bank’s independence leads to the discretionary behavior, reducing dependency of the central bank to the government is suggested for establishing a systematic behavior in the monetary policies of central banks.
sharam fattahi; Kiomars Sohaili; Sara Lorestani
Abstract
Financial assets are particularly important in the saving -investment process, because Investments in financial assets is considered as the engine of production and economic growth in each country. Economic growth and Production increase in a country depends on its ability to produce financial assets. ...
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Financial assets are particularly important in the saving -investment process, because Investments in financial assets is considered as the engine of production and economic growth in each country. Economic growth and Production increase in a country depends on its ability to produce financial assets.
Financial assets shortage certainly creates defects in the market. In this case, either the savings are not sensitive to interest rates or supply assets alone are not responsive to interest rates. Also, capital markets are inefficient. For example, non-competitive markets, increase transaction costs, asymmetric information and poor performance of property rights. These problems are most severe in emerging markets and prevent the issuance of financial assets. However, marker inefficiency, market efficiency, due to investment constraints is caused by the imperfect mobility of capital in the world as well as deviations in the valuation of assets.
Methodology
Asset shortage index is determined according to the supply and demand for financial assets. Domestic demand for assets is determined by gross domestic savings (i.e. all accessible resources for investment) while the supply of financial assets is shown as published domestic bonds, stock loans, foreign assets and net domestic assets by foreign investors and changes in short-term deposits. Asset shortage index that shows assets shortage and available financial instruments for investment in the society as calculated by the following formula:
Where S is the domestic national savings, B is the bond issuance in the domestic market, E is the equity issuance in the domestic market, L is the loan issuance in the domestic market, and S.D. is the short-term deposits. NPFA is the net purchase of foreign financial assets by domestic residents, which reflects the position of domestic investors’ holdings of foreign assets (debt, equity, financial derivatives, other investments) minus the net position of foreign investors’ holdings of domestic assets. The sum of B, E, L, ΔS.D, and NPFA is therefore a reflection of the supply of financial assets.
Results and discussion
In Iran, supply growth in financial assets is less than the demand growth assets and Iran's economy is dominated by the relative assets shortage. To check this, the effectiveness of some of the macroeconomic variables on the asset shortage index is evaluated during the period 1389-1370. The used specified model is ARDL.
The Results of Estimated Long Run ARDL Model
Variables Coefficient Std. Error t-Statistic Prob
Constant -.35269 .10746 -3.2820 .017
LN )GDP( -.14138 .01416 -9.9840 .000
INF .01634 .00139 11.751 .000
RER .226E-4 .43E-5 5.2469 .002
)IR( .05946 .01182 5.0304 .002
GFB .106E-5 .25E-6 4.2411 .005
WG -.01174 .00342 -3.4337 .014
T .04737 .00256 18.455 .000
The results of estimated equation above show that the long-term coefficients of all variables in the model are statistically significant. The coefficient of log variables GDP growth rate of global GDP growth rate is negative in the above equation, which reflects the fact that, economic growth in Iran and global economic growth relative have the potential to reduce the asset shortage index. Also, the coefficients of the variables inflation rate, the real exchange rate, interest rate fluctuations, government and financial balance in the long-term trend have the positive signs. These positive coefficient indicates that a stable economic environment, stable exchange rate policy (stability of the exchange rate greatly reduces the risk policy), lack of volatility interest rates and a better financial position encourage the issuance of new financial assets and a decrease the asset shortage index.
Conclusion
Short-term and long-term results of the estimation ARDL method shows that a significant positive relationship between changes in interest rates and asset shortage. The results also show that inflation has the significant positive impact on the assets shortage index. According to the results obtained from the estimated long-run equilibrium relationship and dynamic model, the inverse correlation between economic growth and financial assets shortage was confirmed. Therefore, higher economic growth can decrease financial asset shortage index both in short run and long run. In addition, the direct and significant impact of real exchange rate on asset shortage index was also confirmed. Of course, the real exchange rate in the short run with no lag has negative coefficient and with a lag has a positive coefficient. But the whole result of these two coefficients has positive value. According to the results, the government deficit has a direct impact on reducing the financial assets shortage both in the short run and long run. Finally, it should be noted that a significant inverse correlation exist between the growth rate of world GDP and the financial assets shortage in Iran.
Sohrab Delangizan; Kiomars Sohaili; Minoo Mohammadi Tirandazeh
Abstract
Abstract:
Introduction
Over the past years, Iranian foreign exchange system encountered with many changes. This matter has increased the possibility of deviation of the real exchange rate from its equilibrium path. So, realizing the long run equilibrium path deviations and their impact on macroeconomic ...
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Abstract:
Introduction
Over the past years, Iranian foreign exchange system encountered with many changes. This matter has increased the possibility of deviation of the real exchange rate from its equilibrium path. So, realizing the long run equilibrium path deviations and their impact on macroeconomic variables can provide economic policymakers with suitable solutions. In specialists discussions, the correct exchange rate that meets the needs of all sectors of economy, from producers to the consumers in the best conditions, is among the most important and challenging issues.
Theoretical frame work
According to the extent of government and central bank intervention there are several exchange rate systems are: 1) fixed exchange rate regime, 2) managed floating exchange rate regime and 3) floating exchange regime. According to Nurks, deviation of exchange rate from long-term equilibrium path leads to internal and external balance simultaneously. The Real exchange rate balance can be determined with respect to three perspectives: Purchasing Power Parity method, The Elasticities Approach, and General-Functional Balance method. The nominal exchange rate can be determined according to: 1) PPP model, 2) Fundamental Equilibrium Exchange rate model, 3) Behavioral Equilibrium Exchange rate model, 4) Permanent Equilibrium Exchange rate model, 5) Natural Rate of Exchange .(Siregar& Rahan,2006)
Methodology
This Study attempts to estimate the deviation of nominal exchange rate of Iranian Rial against U.S. dollar from its long-run equilibrium level, using the model of Coudert and Couharde (2007), based on FEER, applying the method of Johansson cointegration (1999).
Results & Discussion
None of the variables is stationary in level (TRGOVER/GDP), CPIIRWHOLS, and CPIIR . We apply the Johansen- Juselius test (1999), for testing the existence of cointegration relationship between time series. Vector Error Correction Model (VECM) related to this model is as follow:
〖∆Y〗_t=β_1 〖∆Y〗_(t-1)+β_2 〖∆Y〗_(t-2)+⋯+β_(ρ-1) 〖∆Y〗_(t-ρ-1)+∏▒Y_(t-ρ) +φD_t+Uu_t
After estimation of import and export function and the their effect on exchange rates deviation, the deviations in official exchange rate according to trade balance in public and private sectors is:
me (=[(tb) ̌-tbgovertarget-tbprovtarget])/(φ+(a/0.698273))
a=φ〖*τ〗_g+ϑ*ε*τ_ρ-ϑ*έ-ϑ
Conclusion & Suggestion
The result shows that the official exchange rate of the Rial against U.S. dollar has been over-valued by about 64.75 percent. Therefore the Iranian rial should be allowed to depreciate by this amount in order to achieve the internal and external equilibrum. The important point that must be considered by policymakers is that iranan country is the importer of many raw and intermediary goods, and with increasing exchange rate, the costs of production of final goods will increase. Therefore this condition leads to inflation, so that by increasing exchange rate, competition capacity of final producs in Iran decreases in comparing with the production of the same goods in other countries.A recommendation for solving this problem is that for importing raw and intermediary goods, subsides should be paid to the producers, so that the competition capacity of domestic producers increase against foreign producers.
Keywords: Exchange Rate Deviation, the Fundamental Equilibrium Exchange Rate, Internal Balance, External Balance, Trade Balance.
JEL: F32, F31
