Financial monetary economy
Elham Dehghani; Ali Raeispour Rajabali; Seied Abdolmajed Jalaee Esfandabadi
Abstract
1- INTRODUCTION
Welfare is one of the main men needs which economist and policy makers can tack appropriate planning and policies with true cognition from the effect of government policies on welfare. Generally, it is argued that the goal of monetary policies is making economic stability and ...
Read More
1- INTRODUCTION
Welfare is one of the main men needs which economist and policy makers can tack appropriate planning and policies with true cognition from the effect of government policies on welfare. Generally, it is argued that the goal of monetary policies is making economic stability and remaining the stationary of prices. When money volume increases the level of expectation prices will increase and due to rising expectation inflation and reducing both producers and consumers welfare. Therefore, according to the negative effects of uncertainty conditions in economy on welfare of consumers and producers, assessing the effects of monetary policies on exchange rate in uncertainty conditions and its effect on welfare has undeniable importance for prevent from hazardous economic effects which carried out in this research. For this purpose, the effects of shocks due to monetary policies scenarios through increase in liquidity volume and decrease in required reserve rate (2%, 5% and 10%) on foreign exchange rate (Rial/US$) and total welfare was studied.
2- THEORETICAL FRAMEWORK
In the theoretical literature, two channels have been proposed for the effect of the exchange rate on the economy of a country; one is from a micro perspective (influence on economic agents, i.e. consumers, firms, investors, and the government) and the other is at the macro level. Many researchers have argued that households and firms are negatively affected by exchange rate fluctuations through direct and indirect channels. The direct influence of the exchange rate fluctuation is through the change in the price of imported consumer goods and as a result the change in the consumer price index, and its indirect effect is through the national monetary value and as a result the change in the price of intermediate goods and imported inputs, which leads to increase the cost of production. It is obvious that the uncertainty caused by exchange rate fluctuations has a negative effect on investment decisions, and the unreliability of economic conditions increases the severity of this effect. The direct influence channel is based on the assumption that people don’t desire with the fluctuation of the exchange rate, because it causes fluctuations in their consumption, employment and welfare. Its indirect effect is that firms try to cover future risks caused by exchange rate fluctuations by setting higher prices as a risk premium. Therefore, the price of goods and services increases. It is likely that the demand will be lower and the producers will hire fewer workers and as a result the economic welfare will decrease. This point of view is very common in the literature, and most economists do not consider this conclusion unreasonable that exchange rate fluctuations are costly for economic welfare.
3- METHODOLOGY
In order to meet the research goals the required data was gathered from Social Accounting Matrix (SAM) of Parliament Research Center of Iran in the year 2011 and input-output table of central bank of Iran (CBI) in the year 2016. On the other hand, many researches about the effects of monetary policies on economic variables have been carried out by using static computable general equilibrium and in most advanced case with dynamic computable general equilibrium models. But dynamic computable general equilibrium models divided in two categories: interim and recursive. The interim models are based on optimum growth theorem which assumed that economic agents have the ability of complete prediction while this doesn't correct many economic circumstances, especially in developing countries. Hence many economic experts believe that recursive models are more trustable. Therefore, in this research, in order to achieve the results from gathered data the recursive dynamic computable general equilibrium (RDCGE) model and impulse response functions (IRF) through making shocks on monetary police indexes include of: increase in liquidity volume (2%, 5% and 10%) and decrease in required reserve rate (2%, 5% and 10%) were applied. In addition, for data analyzing the Matlab software were applied.
4- RESULTS & DISCUSSION
Results indicated that shocks of increase in liquidity volume equal to 2%, 5% and 10%, maximally will increase the exchange rate equal to 0.97%, 1.98% and 3.08%, respectively. Also, shocks of decrease in legal reserve rate equal to 2%, 5% and 10%, maximally will increase the exchange rate equal to 0.84%, 0.90% and 1.14%, respectively. Because shocks of increase in liquidity volume and decrease in required reserve rate due to increase in money volume, causes to reduce in value of national money in comparison with foreign exchanges and therefore the Rial value of US$ will increase in domestic. In addition, results showed that shocks of increase in liquidity volume equal to 2%, 5% and 10%, maximally will decrease the total welfare equal to 1.19%, 2.47% and 3.53%, respectively. Also, shocks of decrease in required reserve rate equal to 2%, 5% and 10%, maximally will decrease the total welfare equal to 0.73%, 1.64% and 2.81%, respectively. Because shocks of increase in liquidity volume and decrease in required reserve rate due to increase in money volume, causes to reduce in value and power purchase of national money and consequently increase in inflation rate and decrease in total welfare.
5- CONCLUSIONS & SUGGESTIONS
It is concluded that the studies indexes of monetary policies (increase in liquidity volume and decrease in required reserve rate) will increase the foreign exchange rate (Rial/US$) and decrease the total welfare. Indeed, between studied shocks, shock of increase in liquidity volume has more effect on exchange rate and total welfare in comparison with shock of decrease in required reserve rate. Therefore in condition of uncertainty in exchange rate which economic agents transfer their assets to parallel markets especially foreign exchange market and cause to further increase in foreign exchange rate and consequently increase in inflation rate and decrease in total welfare, it is recommended that central bank take a restrictive monetary policy such as increase in bank interest rate because this policy while increase in investment cost, can almost prevent from speculative activities and transferring assets to exchange rate market and exacerbate the exchange rate fluctuations and finally decrease in total welfare.
Financial monetary economy
Farhad Sharifi Bagha; Jafar Haghighat; Zahra Karimi Takanlou
Abstract
1- INTRODUCTIONMonetary policy, as one of the most important economic tools that affects various economic variables through different channels and with different speed and intensity, has always been the attention of the responsible authorities of countries, especially developing countries like ...
Read More
1- INTRODUCTIONMonetary policy, as one of the most important economic tools that affects various economic variables through different channels and with different speed and intensity, has always been the attention of the responsible authorities of countries, especially developing countries like Iran. On the other hand, banks, as financial and credit institutions that have a special place in the country's economy, play a decisive role in the circulation of money and society's wealth. Therefore, examining the impact of monetary policy shocks on the health of Iran's banking system, which is done through the exchange rate channel, is particularly important and is the main goal of this research. Therefore, by using 96 variables of seasonal time series data affecting the bank's profitability index, which is one of the most important indicators of measuring and judging the health of the banking system during the period of 1401:4-1378:1 and using the experimental model of the factor- Added (FAVAR), we investigate the effect of monetary policy through the exchange rate channel on the health of the banking system in Iran. The results show the direct effect of monetary policy through the exchange rate channel on the growth rate of bank network deposits and consequently the power to grant facilities, the amount of bank operating income and the growth rate of bank claims, which from this point of view is one of the most important indicators of the health of the system. A bank that has a profitability index has a negative and significant effect. On the other hand, the effect of monetary policy shocks through the exchange rate channel on the amount of deposit attraction (current, short-term, long-term Rial and foreign currency deposits) and the amount of power to grant facilities and the bank's operating income (income from granting facilities, income from of foreign exchange) is negative and significant and has a positive and significant effect on the amount of claims in the bank.2- THEORETICAL FRAMEWORKAnzwaini et al. (2012) conducted a study aimed at the impact of monetary policy shocks on commodity prices. Global monetary conditions are often cited as a driver of commodity prices. This paper examines the empirical relationship between US monetary policy and commodity prices using a standard VAR system, which is commonly used in analyzing the effects of monetary policy shocks.Jordo et al. (2019) conducted a study with the aim of whether SVARs identify unconventional monetary policy shocks? they did. We show that the used identification schemes have not been able to recover real unconventional monetary policy shocks in the Eurozone. In their identification schemes, information on the size of the central bank's balance sheet is key to distinguishing monetary policy shocks from other shocks that reduce financial market stress.Niazi Mohseni et al. (2019) conducted a study with the aim of investigating the effect of monetary policy shocks and oil revenues on inflation and economic growth in Iran. In this study, the data of the explained variables were used for the period of 1357 to 1397. Data analysis was done using STATA software. The results of this study showed that the increase in the bank interest rate has reduced the economic growth rate for at least two years after the application of the shock, and after that the effect of the shock tends to zero.Asefi et al. (2021) conducted a study on the effect of monetary policy through the asset price channel on financial development. In this study, using seasonal time series data of 110 economic variables in the period of 1370-1390 and self-explanatory model A generalized factor (FAVAR), the impact of monetary policies has been evaluated through the channel of housing and stock prices. The results of the impulse response functions indicate that the housing price channel has increased production in the medium and long term, but it has also had significant inflationary effects in the short and medium term. 3- METHODOLOGYFAVAR model introduced by Bernanke et al. (2005) is a combination of VAR model and factor analysis model. Composite dynamics (Yt, Ft) should be assumed as equation 1.According to the statistical limitations in Iran, the time period investigated in this data research will be the years 2012-2021 and the research variables include three categories:Table 1: Introduction of Xt vector variables, Yt vector exogenous variables and F vector hidden factorsBrief description of the variable Brief description of the variable Rial long term depositLDRLong-term currency depositLDFRial short term depositSDRShort term currency depositSDFriyal current depositsDDRCurrency current depositsDDFLendingloanClaims of non-governmental entitiesDIGovernment claims to the bankDigexchange rateEXCHClaims of other banks and financial institutions to the bankDibIncome from granting facilitiesInlIncome from currency exchangeBcOther variables as hidden factorsبردار The equation can be written as follows using model variables: 4- RESULTS & DISCUSSIONThe results obtained from the findings show that the monetary policy through the exchange rate channel has led to a direct effect on the deposits of the banking network and as a result the power to grant facilities and the amount of non-current bank claims which as a result It has an impact on one of the most important indicators of the health of the banking system, which is the profitability index, and this impact is negative and significant. Also, the effect of monetary policy shocks through the exchange rate channel on the amount of deposit attraction (current, short-term, long-term Rial and foreign currency deposits) and the amount of power to grant facilities and the bank's operating income (income from granting facilities, income from of foreign exchange) is negative and significant and has a positive and significant effect on the number of claims in the bank. 5- CONCLUSIONS & SUGGESTIONSConsidering the importance of the banking sector, in this study, using the FAVAR model, the impact of monetary policy shocks through the exchange rate channel on the health of the banking system of Iran during the years 2012-2021 was investigated.At the beginning, the unit root test was used to measure the significance of the variables using Stata software, and all the variables were at the significance level.In the following, with the help of Schwarz-Baysin, Akaik and Hanan-Quinn criteria, as well as the maximum likelihood statistic, the optimal interval is determined, and since these criteria do not yield the same results, the AIC criterion is used to determine the optimal interval length. and the obtained optimal interval length is specified as one. According to the obtained results, using the FAVAR model is very suitable for measuring the relationships between variables. The results of the model estimation results show that the monetary policy through the exchange rate channel has led to a direct effect on the deposits of the banking network and consequently the power to grant facilities and the amount of non-current bank claims, which is one of the most important the health indicators of the banking system, which is the profitability index, are effective. For this reason, fluctuations caused by monetary policy shocks in the exchange rate, as one of the most important factors affecting the health of the banking system, will have a negative and significant impact.Also, the effect of monetary policy shocks through the exchange rate channel on the amount of deposit attraction (current, short-term, long-term Rial and foreign currency deposits) and the amount of power to grant facilities and the bank's operating income (income from granting facilities, income from of foreign exchange) is negative and significant and has a positive and significant effect on the number of claims in the bank
Habib Habibi Nikjou; ali cheshomi; mostafa salimifar
Abstract
1- INTRODUCTIONEconomic uncertainty is one of the important and influential factors on economic policies and their results, and in such a situation, rational decisions are replaced by other methods. Various studies has shown the effect of economic uncertainty on inflation, investment, economic ...
Read More
1- INTRODUCTIONEconomic uncertainty is one of the important and influential factors on economic policies and their results, and in such a situation, rational decisions are replaced by other methods. Various studies has shown the effect of economic uncertainty on inflation, investment, economic growth, consumption and demand for money.Uncertainty is difficult to measure due to its invisibility, and as the uncertainty measurement methods improve, the measurement of its effect on various economic variables and markets and the prediction of their behavior in response to the actions of economic agents will be more accurate.The main aim of this article is to measure the economic uncertainty index by using news published in social networks. This method of measurement has become very important with the widespread use of social networks. 2- THEORETICAL FRAMEWORKUncertainty is one of the most controversial concepts in the philosophy and methodology of economics. The history of the concept of economic uncertainty goes back to David Hume. There are three categories of theories about economic uncertainty. The first group believes that the future reality is unchangeable and predetermined and economic decision makers have perfect information. In this view, there is no such thing as uncertainty and the world is in complete certainty. 18th century the economists of were the first group to present this theory. The second group believes that the reality of the future is unchangeable and predetermined and the decision makers are able to know the future. These economists use objective conditional probability functions to solve the future uncertainty problem. The third class considers the future reality to be changeable and unknown. The starting point of these theories started from the study of the Chicago school economist Frank Knight titled "Risk, Uncertainty and Profit". He clearly distinguished between the two concepts of risk and uncertainty. Keynes also reached the same results as Knight. In general, in a situation where the economy has a high level of uncertainty, the theories of the first and second category have a good explanation. But in confronting with exogenous shocks such as the corona virus epidemic, war and financial crisis, the concept of uncertainty will be more appropriate in the theories of the third category. This study will measure this index based on fundamental uncertainty (the third category). 3- METHODOLOGYIn this article, the economic uncertainty index in Iran was measured from January 2017 to December 2020 by monitoring and analyzing 3,117,960 news from 28 popular and influential Iranian Telegram channels. To analyze these news, we used "supervised machine learning" methods. In the first step, 13,404 news items were labeled by human evaluators according to their impact on uncertainty. The labels had two modes "affecting uncertainty" and "neutral". Then by using four algorithms ("C4.5" from decision tree methods, "Multilayer Perceptron" from artificial neural network methods, "Logistics" from function-oriented methods and "Simple Bayes" from Bayesian methods) labeling of the whole news was done. The economic uncertainty index was calculated numerically and based on the number of news items that affect economic uncertainty, the measurement and value of this index was standardized, and then the quality of the index was evaluated with historical evidence, relabeling and comparison with the index based on Google data. 4- RESULTS & DISCUSSIONAmong the 4 media-based uncertainty indicators, 3 indicators can better explain the historical events of this period. Among them, the best performance is determined by C4.5 algorithm from the decision tree methods. After this algorithm, multilayer perceptron, logistic has the best performance and the weakest performance belongs to the simple Bayes method. Media-based economic uncertainty index trend with C4.5 method is consistent with the important events of the study period, in such a way that the highest level of uncertainty occurred during the period when Trump announced his withdrawal from the JCPOA until the official withdrawal of the United States from the JCPOA. In general, it can be said that the fluctuations of the economic uncertainty index have been limited and have several jumps, which are due to the withdrawal of the United States from the JCPOA, the oil embargo and the assassination of Sardar Soleimani.In the logistic algorithm, the highest level of uncertainty dates back to the end of 2020. The period that coincides with Trump's presidential election. The level of economic uncertainty increases after Trump's official withdrawal from the JCPOA and reaches its peak with oil sanctions.The output of the multilayer perceptron algorithm indicates that the average level of uncertainty has not changed significantly. In the simple Bayes algorithm, the highest level was also reached during the period of the withdrawal of the United States from the JCPOA and the increase in enrichment. The results of the regression showed that economic uncertainty has a positive and significant effect on the average logarithm of the exchange rate with multilayer perceptron, logistic and simple methods. This effect is larger in the multilayer perceptron model, which had better performance based on machine learning indicators. 5- CONCLUSIONS & SUGGESTIONSThe calculated economic uncertainty index is consistent with the important events of the study period, such as the US withdrawal from the JCPOA, Iran’soil sanctions, and the escalation of the US confrontation with Iran in the assassination of Sardar Soleimani. It is suggested that daily calculation of this index be used to reduce uncertainty in the managing future events. We employed GARCH model to test effect of Media-based Economic Uncertainty index on Iranian exchange rate. The results showed that Economic Uncertainty index has poisitve effect on exchange rate.
zohreh eskandaripour; marzieh esfandiari; nazar dahmarde; Mohammad Hassan Fotros
Abstract
Given the dependence of the country's economy on banks as the most important source of financing for companies, it is important to study the factors affecting the performance of the banking system; Therefore, in this study, the effect of exchange rate shocks, crude oil prices, total stock index and government ...
Read More
Given the dependence of the country's economy on banks as the most important source of financing for companies, it is important to study the factors affecting the performance of the banking system; Therefore, in this study, the effect of exchange rate shocks, crude oil prices, total stock index and government budget on the performance (profitability) of the country's banking system in the form of 12 scenarios based on the profitability response of the banking network to 2%, 5% and 10 Shock% was addressed in the mentioned variables. For this purpose, research data were collected from the SAM matrix of the Majles Research Center in 2011 and the data-output table of the Central Bank in 2016. Also, the dynamic recursive dynamic calculus model (RDCGE) and Math Lab software were used to analyze the data. The results showed that the informal exchange rate and crude oil prices have an inverse effect and the total government stock index and budget have a direct effect on the profitability of the banking network; So that if a positive shock of 2%, 5% and 10% is applied to the informal exchange rate, the profitability of the banking network will decrease to a maximum of 1.73, 2.01 and 2.57%, respectively. Also, if a positive shock of 2%, 5% and 10% is applied to the price of crude oil, the profitability of the banking network will decrease to a maximum of 1.41, 1.63 and 2.03%, respectively. In addition, if a positive shock of 2%, 5% and 10% enters the total stock index, the profitability of the banking network will increase to a maximum of 0.47, 0.97 and 1.52%, respectively. Finally, if a positive shock of 2%, 5% and 10% enters the government budget, the profitability of the banking network will increase to a maximum of 0.38, 0.44 and 0.61%, respectively.
saman houshmandi; Seyed Shamsuddin Hosseini; Abbas Memarnejad; Farhad ghaffari
Abstract
1- INTRODUCTION
Because of the exchange fluctuations in Iranian economy, the capital market has undergone significant changes. the petroleum products stock index has the largest share in the capital market price index compared to currency industries. the present study tries to investigate the impact ...
Read More
1- INTRODUCTION
Because of the exchange fluctuations in Iranian economy, the capital market has undergone significant changes. the petroleum products stock index has the largest share in the capital market price index compared to currency industries. the present study tries to investigate the impact of the exchange rate crisis on the petroleum products stock index in Tehran stock exchange by using the monthly data of the period of 2009:1-2020:3 and using the nonlinear Markov switching approach.
2- THEORETICAL FRAMEWORK
Due to the high dependence of foreign exchange reserves on the oil foreign exchange receipts (DEXO) and the sharp decline in these receipts, the central bank has faced limitations in supplying the foreign exchange to the market. thus, reducing the currency resources and supplying the foreign exchange on the one hand, and the growth of the foreign exchange demand on the other hand, have caused the raise in the exchange rate.
Economic sanctions have always affected the foreign exchange market, the extent of which depends on the severity of the sanctions. the most important reason for the volatile increase in the exchange rate in recent years is the oil and banking sanctions against our country. economic sanctions will significantly reduce the oil and non-oil exports by restricting the purchasing of the trading partners, and through the channel of declining the foreign exchange earnings will lead to a decrease in the supply of the foreign exchange, and consequently a sharp increase in the exchange rate (devaluation of the national currency). now, we turn to the mechanism of transferring the currency crisis to the stock prices.
Changes in the exchange rates can have two different impacts on the stock prices. on the one hand, the increase in the exchange rate (in terms of demand) has led to an increase in the income of the exporting companies (such as refineries, petrochemicals, metals, mining, etc.) and, consequently, their stock prices, and on the other hand (based on the supply), leads to lower profits for the importing companies such as some automotive, pharmaceutical and food industries, as well as the transportation and leads to lower stock prices.
In addition to dividends, stock buyers also pay attention to the changes in the company's intrinsic value. the intrinsic value of industries whose creation and operation require the supply of machinery from abroad, is affected by the exchange rate changes. and if a company imports the machinery at lower exchange rates, the intrinsic value of the company will increase as the exchange rate increases, and this intrinsic increase intensifies when the establishment of a similar company is not possible due to the high exchange rate, and if the company's products are produced exclusively, its demand will increase and the company's profit will be higher over time. on the other hand, the share of depreciation cost of machinery in the cost of goods produced by the company decreases. considering the above cases by investors, the demand for the shares of these companies will increase and this will increase the stock prices of these companies. in addition, if the exchange rate decreases over time, it will cause the opposite effect for these companies.
3- METHODOLOGY
Recently, the use of the nonlinear models in fluctuation studies has expanded because of this assumption that the linearity of the exchange fluctuations is a large and unrealistic limitation for these studies. this pattern is also known as the pattern of the regime change. the regime change means that a policy variable may show a behavior in one period of time and behave differently in another time period. therefore, if this issue is not considered in the study of the behavior of the variable, the biased results will be obtained. markov rotation models, as the nonlinear models, are able to model the behavioral pattern of the changing status of the dependent variable over time. in nonlinear models, it is assumed that the behavior of the variable on which the modeling is performed is differently and changes in different states.
For this purpose, among the various modes of Markov switching model, MSIAH (2) –VAR (2) has been selected.
4- RESULTS & DISCUSSION
The empirical findings of the study show that only in a regime with high fluctuations (first regime), the exchange rate is the causal relationship of the petroleum products stock index and the increase in the exchange rate has increased the petroleum products stock index, while the petroleum products stock index has no impact on the exchange rate. In addition, the results indicate that the sustainability of the petroleum products stock index in the regime with the low fluctuations (second regime) was more than of the regime with the high fluctuations (first regime).
5- CONCLUSIONS & SUGGESTIONS
Due to the results of the present study, there is a one-way relationship between high exchange rate fluctuations and the stock index of petroleum products. investors active in the stock market, in addition to considering how the stock index of petroleum products is affected by other influential domestic variables, should also consider high exchange rate fluctuations and make their decisions. it is suggested that shareholders, in order to benefit from the growth of the capital market index, as soon as the exchange rate rises sharply, buy shares of companies exporting goods, such as refineries, petrochemicals, metals, mining, etc. also, as soon as the exchange rate falls sharply, sell the shares of the mentioned companies and buy the shares of companies independent of the exchange rate in order not to suffer from the risk of a decrease in the stock index.
Mohammad Reza Lotfalipour; Nooshin Karimi Alavijeh
Abstract
One of the main issues in macroeconomics is the study of the relationship between interest rates and exchange rates, the effects of these two variables have been considered by politicians and policy makers. Therefore, in this study due to the two-rate exchange rate in the Iranian economy, the two official ...
Read More
One of the main issues in macroeconomics is the study of the relationship between interest rates and exchange rates, the effects of these two variables have been considered by politicians and policy makers. Therefore, in this study due to the two-rate exchange rate in the Iranian economy, the two official exchange rate and the unofficial exchange rate is used. Also in this research of interest rates, one-year deposit interest rate short term and long term is five years, which will be announced by the Central Bank of the Islamic Republic of Iran. In this paper, the exchange rate during the period 1974-2014 was estimated with particle swarm optimization algorithm and genetic algorithm. And according to performance criteria, models with particle swarm optimization algorithm was selected to investigate the relationship between interest rates and exchange rates. The results show that the interest rate on short-term and long-term with official and unofficial exchange rates have indirect relationship. In fact, interest rates will increase the value of the national currency. Also in this study, the rate of money growth and gross domestic product on official and unofficial exchange rate is positive. In other words, by increasing the growth rate of money and gross domestic product, the value of the national currency decreases.
mahdieh rezagholizadeh; Majid Aghaei
Abstract
Introduction
Iran has faced with high fluctuations in exchange rates in recent years and this volatility plays an important role in determining the return of exporter and importer industries in Iran. Thus, this study will estimate the relationship between exchange rate and return of exporter and importer ...
Read More
Introduction
Iran has faced with high fluctuations in exchange rates in recent years and this volatility plays an important role in determining the return of exporter and importer industries in Iran. Thus, this study will estimate the relationship between exchange rate and return of exporter and importer industries in Tehran stock exchange. In addition, world oil price, excess market return, inflation rate and interest rate, which are the most important variables affecting the stock return, will be introduced as explanatory variables.
Theoretical framework
Exchange rate is a very important factor in a country’s economy and in the Stock market. An increase in the exchange rate leads to more expensive imports for domestic industries and increases their production costs. This has a negative effect on industries’ profit and their dividends and thus decreases their stock return. On the other hand, an increase in the exchange rate leads to more export and also improves the competition position of domestic producers and thus has a positive effect on the stock returns. The relationship between foreign currency and stock can also be investigated from another point of view; foreign currencies (especially the U.S. dollar) are an alternative asset for stock in countries. Hence, an increase in the exchange rate may increase the demand for foreign currency and shift some part of investor’s money from the stock market to the exchange market, leading to a decrease in the stock return.
We estimate the relationship between exchange rate, world oil price, excessive market return, inflation rate and interest rate, and return of exporter and importer industries in Tehran stock exchange for two groups of industries. We consider four major export industries (ie.e, metal ores mining; cement, lime and plaster; basic metal; and chemicals and by-products) and the four major import industries (i.e., motor vehicles and auto parts; pharmaceuticals; machinery and equipment; and non-metallic mineral products) in Iran, respectively. These industries are closely related to international markets and all of their transactions are conducted by international currency and thus any fluctuations in exchange rate will affect their stock return. Considering the importance of these two groups in Iran’s economy, we estimate the relationship between their stock returns and mentioned variables to analyze how these variables, particularly exchange rate, affect export and import industries in Iran.
Methodology
The long run and short run relationship between exchange rate and return of exporter and importer industries in Tehran stock exchange will be estimated using economic theory, and Panel Error Correction Model (PECM), panel cointegration and causality tests during 2005-2016. Long run and short run coefficients estimations have been done using Dynamic Ordinary Least Square (DOLS) and Pooled Mean Group (PMG) respectively.
Conclusion
The results indicate that there is a long-run equilibrium relationship between exchange rate, excessive market return (premium), real crude oil price, inflation rate and interest rate with stock return. The relationship between exchange rate and stock return of exporter industries is positive and there is a bidirectional relationship between these variables. This relationship in importer group is negative.
Siab Mamipour; Ziba Sasanian Asl
Abstract
Financial markets are sensitive to exchange rate fluctuations of the Iran’s economy. Changes in the foreign exchange market affect household, businesses, and government spendings. Exchange rate management policy helps stock market to be protected from the effects of exchange rates. As for investment ...
Read More
Financial markets are sensitive to exchange rate fluctuations of the Iran’s economy. Changes in the foreign exchange market affect household, businesses, and government spendings. Exchange rate management policy helps stock market to be protected from the effects of exchange rates. As for investment strategies, investors can invest without considering the exchange rate in the short run investments, but exposure to asymmetric exchange rate is very important in long run.
This study explores the asymmetric exchange rate exposure of stock returns building upon the capital asset pricing model (CAPM) framework, using monthly returns of Iranian industry indices. In accordance with the existing literature, industry returns are subject to lagged exposure effects, but the asymmetries vary across industries, which could be due to the discrepancies of trade balance and ownership of certain industries.
Furthermore, the dynamic multipliers depict that industry returns quickly respond to changes in the exchange rate and correct the disequilibrium within a short time, making the long run exposure to be symmetric or very small (Cuestas & Tang, 2015).
Methodology
The main aim of this study is, hence, to investigate the asymmetric exchange rate exposure of stock returns in the Iranian stock market at the industry level. Specifically, we introduce the conventional CAPM for measuring exchange rate exposure. We construct the dynamic nonlinear model to investigate both the long run and short run asymmetric exposure effects, which is carried out by means of estimating a nonlinear autoregressive distributed lag (NARDL) model introduced by Shin and Greenwood-Nimmo (2014).
Building upon the CAPM structure, this paper contributes to a growing literature on the analysis of exchange rate exposure of Iran's stock market on the following grounds. First, compared to linear regression models, the NARDL model demonstrates its competence and efficiency in estimating the exchange rate exposure. The disparities in the exposure effect depend on the ownership of these companies and the expansion of their global operations. Second, industry returns strongly and quickly respond to exchange rate changes in the very short run, while most of the long run exposures are symmetric or very small.
In fact, this paper studies the effects of positive and negative shocks of exchange rate on the return of various industries in stock market based on CAPM model and NARDL approach to estimate parameters during the period of April 2012 to March 2015.
To evaluate the efficiency of asymmetric effects of exchange rate on active industries in Tehran stock market, first exchange rates decompose to positive and negative shocks and then its asymmetric effects on stock market is analyzed using NARDL model. To do it, we use the Wald test for the symmetry or asymmetry effects of positive and negative exchange rate on return of active industries in the short run and long run.
Results and Discussion
The results indicate that most industries of stock market are under the influence of positive and negative shocks of exchange rate and these effects are different for industries. Hence, the effects of positive and negative exchange rate shocks for the industries such as agriculture, textile, rubber, engineering, leather, communication, steel products, radio, chemical materials, and multi-disciplinary industries are symmetric while the effect of exchange rate shocks on return of industries like bank, automobile, basic metals, publishing and printing, electrical devices, computer , tool medical, cement, finance, non finance, investments, paper, non-metallic minerals, and machinery industries are asymmetric in short run, and for industries of ceramic tiles, they are asymmetric in the long run. Additionally, in industries like mass production, oil, transport, coal, drugs, wood, sugar, food ingredients except sugar, they are asymmetric in the short run and long run.
Thus, the results of this study can be useful for investors and shareholders in predicting the short and long term effects of exchange rate shocks on the stock prices.
Therefore, it can be argued that sudden shocks exchange rate can affect about 70 percent of returns of active industries in Tehran Stock market. Therefore, avoiding sudden shocks and maintaining relative stability in exchange market are the main suggestions for policymakers. Also, given that the exchange rate shocks are exogenous variables for firm managers, investors should further evaluate the performance of companies and their profitability, and consider long run vision in analysis and making decisions.
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 ...
Read More
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.
firouz fallahi; khalil jahangiri
Abstract
Introduction
Intertwined structures of modern economies make losses to spread from a sector or a country to other countries or economic sectors. Empirical evidence has shown that markets are not isolated from each other and their movements are not separated. Particularly in recent decade’s development ...
Read More
Introduction
Intertwined structures of modern economies make losses to spread from a sector or a country to other countries or economic sectors. Empirical evidence has shown that markets are not isolated from each other and their movements are not separated. Particularly in recent decade’s development of agencies and international and multinational organizations, developments in information technology (IT), deregulation of financial systems in industrialized countries and immense growth in international capital flows have caused financial markets in the world to have more connections (Bracker & Koch, 1999). Volatilities in various asset markets are intensely in linkage. Therefore, it is vital for investors to have the knowledge of the linkages between financial assets to take the appropriate decisions.
Since the beginning of the summer of 2011 Iran's economy has been through a very special situation as a result of sanctions, targeted subsidies effects, increasing liquidity for many years and other factors. After a long period of exchange rate management in this country, instability gripped the market and consequently, the gold coin market was also experiencing an increase of volatility. Tehran Stock Exchange index began to break the records since 2012. Due to the economic recession and high inflation, entering stock market, coin market or the foreign exchange market as investing alternatives to investors who had hot money in their hands.
In such a turmoil that has been created in the aforementioned property market, these questions may be asked that; how is the structure of interrelationships of assets such as stocks, gold coin and currency in Iran? Is there any evidence of the occurrence of the phenomenon of financial contagion in currency, gold coin and stock markets in Iran?
Theoretical Framework
Many theoretical explanations are presented about financial contagion in the financial literature. In most studies, financial contagion is considered as highly co-movements which is the result of rational behavior of activists in markets with failure (e.g., asymmetric information, risk-bearing capacity, imperfect competition, wealth and borrowing constraints, etc. ) or as irrational decisions by the same market activists (e.g., herding behavior) (Choe, et al., 2012).
According to Claessens and Forbes (2004), financial contagion causes has been classified into 2 groups as follow:
Methodology
Following the study of Choe, et al. (2012), our model consists of three parts: first, we use the dynamic conditional correlation (DCC) model proposed by Engle (2002) to capture the time-varying nature of the conditional correlation. Then, inspired by very restrictive definition if contagion provided by World Bank (contagion is defined as a statistically significant change in the correlation dynamics during "crisis times" relative to correlations during "tranquil times"), to examine contagion, we specify modified DCC multivariate GARCH model, with a time dummy variable imposed for representing the turmoil periods and performs the likelihood ratio (LR) test. Finally our results from time-varying conditional correlation test are compared with the results of adjusted traditional correlation test.
Results & Discussion
The obtained results of using t-student test for financial contagion hypothesis between markets indicated that the exchange market as the crisis trigger seems to be affected by the gold coin market. Furthermore, the t-student of their adjusted correlation coefficients during the crisis was significant. This result supports a pure contagion hypothesis after the exchange market shock. Also, the likelihood ratio test results indicated that only linkages between two markets (including exchange market and gold coin market) exhibited contagion evidence. The estimated value of was positive and statistically significant at the 5% level, implying that there was a sudden jump in the conditional correlation dynamics between exchange market and gold coin market. Moreover, the results showed that there is no evidence of financial contagion in the relationship between exchange-stock and gold coin-stock markets. The estimated value of was insignificant in the modified DCC model of the exchange-stock and gold coin-stock markets. This implies that there is no significant jump in the conditional correlation dynamics between the exchange market and stock market as well as gold coin market and stock market during the crisis period. This result is consistent with the conventional t-test results.
Conclusion & Suggestions
Following Choe, et al. (2012), we used a time-varying conditional correlation test for financial contagion among exchange, stocks and gold coin markets during the period of 27/03/2010 to 21/09/2013 in Iran. In this time-varying correlation test, contagion is defined as a structural break in the dynamics of conditional correlation during the crisis period. The reason for the selection of this period of time is dramatic fluctuations in the mentioned market (especially in exchange market and gold coin market) whose starting point was 08/2011. Using the dynamic conditional correlation (DCC) model, we found that only the exchange market and gold coin market show evidence of financial contagion.
It is rational that the very high correlation and financial contagion between gold coin and exchange market could actually neutralize the benefits of portfolio diversification. In front, low correlation and lack of financial contagion between stock-exchange markets and stock-gold coin markets nncourages to invest in stock market instead of investing simultaneously in coin and exchange markets in Iran.
mehdi adibpour; Maryam Elhami
Abstract
Introduction
Identification of factors affecting the money demand plays a very important role in the detection of monetary transmission mechanism; and knowing the elasticity of demand for money is vital to guide the monetary policy. The relationship between real money demand and its determinant factors ...
Read More
Introduction
Identification of factors affecting the money demand plays a very important role in the detection of monetary transmission mechanism; and knowing the elasticity of demand for money is vital to guide the monetary policy. The relationship between real money demand and its determinant factors has been at the center of a considerable amount of economic studies during the last decades. Exchange rate is one of the most important factors that has an important effect on many economic variables such as demand for Money. Apart from exchange rate, the variations in exchange rate that cause exchange rate uncertainty also can influence investors' expectations, the preferences of holding financial assets, and the money demand. With regard to the importance of exchange rate uncertainty and its impact on the demad for money, this paper aims to investigate the effects of exchange rate uncertainty on the money demand in Iran over the period of 1988(1) to 2008(4).
Theoretical Framework
The idea that money demand depends on the exchange rate in addition to income and interest rate was first proposed by Mundell (1963). During the last decades, subsequent studies tried to justify the relationship between exchange rate and money demand. Tower and Willett (1976), Al-khuri and Nsoul (1978), Holden, et al. (1979), Cuddington (1983), Bergstrand and Bundt (1990), Bahmani-Osooee and pourheydarian (1990), Leventakis (1993), Chaisrisawatsuk, et al. (2004), Arshad Khan, and Sajjid (2005), Azim, et al. (2010), and Shahadudheen (2011) emphasized on the role of the exchange rate on money demand. In addition to exchange rate, the variations in foreign exchange rate affect composition of optimal money holding. Changes in exchange rate have two effects on the money demand, i.e., wealth effects and substitution effects. Wealth holders ordinarily evaluate their asset in terms of domestic currency. Exchange rate depreciation, for example, would increase the value of their foreign assets held. To maintain a fixed share of their wealth invested in domestic assets, they will repatriate part of their foreign assets to domestic assets, including domestic currency. Hence, exchange rate depreciation would increase the demand for domestic money. On the other hand, exchange rate variations may cause a currency substitution effect, in which investors' expectation plays a crucial role. If wealth holders expect that the exchange rate is likely to fall further following an initial depreciation, they will respond by raising the share of foreign assets. In this condition exchange rate depreciation means higher opportunity cost of holding domestic money. Therefore, currency substitution can be used to hedge against such risk. In this regard, exchange rate depreciation would decrease the demand for domestic money (Sahadudheen, 2012).
Methodology
In this study, money demand has been considered as a function of Gross Domestic Product (GDP) and inflation (to represent the economic activity and the opportunity cost of holding money respectively), real exchange rate and real exchange rate uncertainty. The data used in this study was gathered from central bank of Iran over the period of 1988(1)to 2008(4). To assess the relationship between the series, first, real exchange rate uncertainty was calculated by adopting a Generalized Autoregressive Conditional Heteroskedasticity (GARCH ) model and then was included in the money demand function along with other factors such as Gross Domestic Product, real exchange rate and inflation (as a proxy for interest rate). In the next step, with regards to nonstationary variables, cointegration test was performed to estimate the long run demand for money. Results indicated that there is long run relationship between variables in demand for money model function. Finally, the money demand function was estimated by means of Vector error correction Model (VECM).
Results & Discussion
In this study, we argued that since exchange rate and exchange rate uncertainty have both wealth and substitution effects, they could have a direct impact on the demand for money aside from other variables such as income and inflation. The estimation results from VEC model revealed that income elasticity of money demand (M2) was significant and positive; in the other words, the increase in Gross Domestic Product would increase the money demand. The effect of inflation on money demand was significant and negative. Inflation indicates that the cost of money holding and the increase in it would decrease demand for money. Real exchange rate and real exchange rate uncertainty have had negative and significant effects on money demand that indicates the substitution effect in Iran's economy. In fact, currency substitution effect has been overcomed by the wealth effects.
Conclusion & Suggestions
The negative effects of real exchange rate and its uncertainty on money demand indicates that movement and uncertainty of exchange rate decrease demand for money, which supports the substitution effect. In fact, with the probability of a considerable variation in exchange rate, the opportunity cost of holding money would increase and people prefer to substitute domestic money with foreign currency. For this reason, in order to avoid substantial fluctuations and stabilization of the exchange rate, the adoption of appropriate monetary and foreign exchange policies by the central bank is necessary for Iran's economy.
Ali Akbar Naji Meidani; Sayedeh Zahra Shakeri; Fatemeh kobra Bata
Abstract
Stock is an item of financial assets portfolio. So, understanding the factors influencing its value concerns investors. Price changes in the stock Exchange is not only due to internal factors such as dividends, net profit and cash flows of the companies, but also external factors such as macroeconomic ...
Read More
Stock is an item of financial assets portfolio. So, understanding the factors influencing its value concerns investors. Price changes in the stock Exchange is not only due to internal factors such as dividends, net profit and cash flows of the companies, but also external factors such as macroeconomic variables. Automotive industry, in the world, is one of most strategic industries and in Iran has the highest share in GDP after oil industry.
This paper investigates the relationship between stock price of automotive companies in Tehran Stock Exchange and monetary macro variables such as exchange rate and consumer price index by using panel data from 2004 - 2010.
Our results show direct and significant relationship between stock prices of the companies with their dividends and real incomes and so with the exchange rate ,while there is a negative relationship between stock price and consumer price index.
S. Jamaledin M. Zonouzi
Abstract
In last 1990 decade and early 21 century due to high fluctuations in assets prices and occurring asset price bubbles, most studies in monetary economics has concentrated on the reaction of monetary policy to movement in asset prices.
The purpose of this paper is to analyze the suitable reaction ...
Read More
In last 1990 decade and early 21 century due to high fluctuations in assets prices and occurring asset price bubbles, most studies in monetary economics has concentrated on the reaction of monetary policy to movement in asset prices.
The purpose of this paper is to analyze the suitable reaction of monetary policy to movement in asset prices in Iran. This analysis is based on the Structural VAR class of models, which allow assessing the importance of assets prices for central bank targeting. In this article, assets prices include housing prices, stock prices, exchange rates and gold (coin) prices in period of 1989/Q2-2007/Q1.
According to the results, the expansionary monetary policy (real liquidity) shocks as a significant effect on stock prices, housing prices and exchange rates. The gold prices are more affected by dollar prices fluctuations. Housing prices, gold prices, and exchange rates explain 20 percent of output (GNP) fluctuations, but stock prices do not explain output fluctuations significantly. Therefore, exchange rate, housing prices, and gold prices have important role in transferring monetary shocks to output fluctuations respectively.
Ali Reza Karbasi; Hassan Ahmadi
Abstract
Raisin is the second major export item in Iranian agricultural section after pistachio. In this study, effects of exchange rate fluctuations were investigated on quantity and price of exported raisin. Therefore, data of 1970 to 2008 were reviewed by time series analysis and estimated by Auto-Regressive ...
Read More
Raisin is the second major export item in Iranian agricultural section after pistachio. In this study, effects of exchange rate fluctuations were investigated on quantity and price of exported raisin. Therefore, data of 1970 to 2008 were reviewed by time series analysis and estimated by Auto-Regressive Distributed Lag Model (ARDL).
Results show the absence of a long-term relationship between export quantity, export price and real exchange rate. Meanwhile, considering the competing situation of raisin market, increased amount of export of raisin will result in more income and increasing trade benefit with no significant effect on the Price. In addition, a decline in export quantity for one year will result in less export in upcoming years due to loss of customers.
