yazdan gudarzi farahani; Omidali adeli
Abstract
1- INTRODUCTION
The effect of monetary policy on the exchange rate in the Dornbusch’s point of view is that unpredictable changes in the money supply play a major role in exchange rate fluctuations. In a fixed exchange rate system, keeping the country's currency stable against foreign ...
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1- INTRODUCTION
The effect of monetary policy on the exchange rate in the Dornbusch’s point of view is that unpredictable changes in the money supply play a major role in exchange rate fluctuations. In a fixed exchange rate system, keeping the country's currency stable against foreign currency stabilizes a country's currency and provides grounds for increasing the credibility of policy makers; at the same time, the floating currency system provides the basis for removing the effects of external shocks from the economy. In addition, the use of a fixed exchange rate system has reduced the uncertainty of the real sectors of the economy, and this issue can improve international trade and domestic investment. However, the use of a floating exchange rate system can lead to the independence of monetary policy in the face of shocks and can be considered as a tool to stabilize the economy in times of business cycles.
2- THEORETICAL FRAMEWORK
The theory of exchange rate overshooting was proposed for the first time by Dornbusch in 1976. If the economy is continuously exposed to unexpected monetary expansion, the exchange rate will exceed its long-term trend in the short term and return to its long-term level in the long term. The overshooting in the exchange rate is a short-term phenomenon that is formed due to the price sticky in the short term and the high adjustment speed in the financial market and the slow adjustment in the real sector of the economy. The dominant core of monetary systems is the use of a "nominal anchor". The nominal anchor is a variable that is used to achieve the goal of monetary policy, and the purpose of its authority is to adjust inflationary expectations and commit the monetary authorities to achieve the declared goals. The innovation of the present study compared to the previous studies is the use of a dynamic approach as well as the examination of the exchange rate jump in the conditions of a stable and floating exchange rate system, which has been less considered in previous studies.
3- METHODOLOGY
The purpose of this paper is to investigate the relationship between monetary policy and exchange rate overshooting in the Iranian economy. In order to test the experimental model of the research, the data of the period 1989-2020 based on the frequency of seasonal data and the generalized moment method (GMM) were used. Based on this, in the form of two stable and floating exchange systems, the rate of jump and deviation in the exchange rate has been calculated by using the Hodrick-Prescott filter and the effect of monetary policy and macro variables on the exchange rate overshooting has been calculated.
4- RESULTS & DISCUSSION
The results showed that the monetary policy leads to an overshooting in the exchange rate and creating a deviation in the exchange rate, and this issue has been more severe in the floating exchange rate system compared to the fixed exchange rate system. Also, the results showed that the production gap had a significant effect on reducing the deviation of the real exchange rate. On the other hand, based on the estimated coefficient, it was observed that the deviation of the inflation rate leads to an increasingly deviation of the real exchange rate.
5- CONCLUSIONS & SUGGESTIONS
Since the relationship between monetary policy and exchange rate is positive, with an expansionary monetary policy, the exchange rate increases, which means the value of the national currency decreases. Therefore, in order to reduce the negative effects of monetary policy on the value of the national currency, it is suggested that appropriate policies and executive tools be designed and implemented by the government so that with proper management, it can be placed on the path of economic activities in the society. There is a need for monetary policy stability, which itself requires the existence of an independent central bank.
Financial monetary economy
samira motaghi; samane talei; ramezan gholami
Abstract
According to Fisher's theory, an increase in expected inflation results in a unit increase in nominal interest rates, and the real interest rate, which plays a key role in shaping investment and savings behavior, remains constant, and this factor, although inflation Leads to the neutralization of monetary ...
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According to Fisher's theory, an increase in expected inflation results in a unit increase in nominal interest rates, and the real interest rate, which plays a key role in shaping investment and savings behavior, remains constant, and this factor, although inflation Leads to the neutralization of monetary policy;On the other hand, based on the theory of quantity of money and the direct relationship between the velocity of money and the general level of prices, as well as the direct effect of the velocity of money on interest rates, raising interest rates is expected to increase inflation.This effect of interest rates on the inflation index (according to some economists) is not only related to inflation and affects other macroeconomic variables, but the important issue is the type, manner and amount of this effect in the short term and It is a long-term study in the present study using VAR and VECM methods and in the period of 1360 to 1399.The results of the study show the confirmation of Fisher's theory in the Iranian economy both in the short and long term, and suggest that there is a positive and significant relationship between the interest rate variable and the inflation index in the Iranian economy.In addition, variable interest rate fluctuations overshadow other macroeconomic indicators, as this relationship is inverse for the economic growth index and physical investment and direct for the inflation rate index.
Mohsen Niazimohseni; Hamid Shahrestani; Kambiz Hojabr Kiani; Farhad Ghafari
Abstract
Introduction Monetary and financial affiliation, always closely linked to oil sector in Iran (as an oil exporter country) has made Monetary Policy a remarkable challenge to the economic policy- makers. In fact, according to expected statistics, a considerable amount of budget is provided by currency ...
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Introduction Monetary and financial affiliation, always closely linked to oil sector in Iran (as an oil exporter country) has made Monetary Policy a remarkable challenge to the economic policy- makers. In fact, according to expected statistics, a considerable amount of budget is provided by currency sources from oil export and withdrawal from foreign exchange reserve account by which Central Bank inevitably buys currency resulting to increase monetary base. Lack of possibility of mathematical anticipation and uncertainty of oil revenues to finance is one of the challenges monetary authorities encounter in Iran. Accordingly, mathematical programing for economic stability requires identifying the effect of Monetary Policy based on oil revenue. Examination of the effect of Monetary Policy in economics started with the theory of '' the amount of money''. Economic experts are of different viewpoints on the impact of Monetary Policy on Marco variables. According to theoretical and experimental literature, Monetary Policy makes an outstanding difference on Marco variables. On the other hand such policies are extinguished by oil revenue leading to more obscurity. Theoretical framework According to the existing literature, the way of applying Monetary Policy is different in oil exporter and importer countries. when oil price rises, Central bank, In order to control inflation, increases the interest rate, and Monetary Policy acts as a contraction in oil importer countries. However, in oil exporter countries, when oil price rises, currency revenues, mainly in the hands of the government, increases, and the government, by converting part of oil dollars to domestic currency, intentionally or unintentionally, increases the amount of money to provide its expenses. So, in exporter countries like Iran, oil revenues directly affect economic Macro variables. They, also, indirectly affect through Monetary Policy. Methodology The purpose of this study is to examine the effect of monetary policy on economic Marco variables due to oil revenues. This study has, also, used interest rate variable, bank facilities, and legal reserve rate on monetary policy. Such variables have been used, indoors or outdoors, in different economic studies. Basically, in this study, the economic Marco variables are also economic growth and inflation rate respectively due to the limited access to information and also other existing limitations. To measure the economic growth rate, GDP growth rate at a fixed price has been used. The inflation rate resulted from consumer price index growth rate (CPI). In this study, using STATA software, the variables have been used from the years 1978 to 2017. Results & Discussion The results of this study have shown that the rise in bank interest rate has run down the economic growth rate at least up to two years after applying the shock. It drifted towards zero afterwards. With the rise in bank interest rate growth, the cost of financing has been decimated resulting to investment reduction. On the other hand, with the rise in bank interest rate, the inflation rate has been reduced. It is obvious shock standard deviation in bank facilities interest rate has, up to three periods after applying the shock, left positive impact on inflation rate, and the impact has been reduced to zero. Economic growth reveals like bank facilities rate, such a variable has a negative impact on Iran's economic growth. The rise in legal reserve rate has been one period after applying the shock up to zero in the second period. On the other hand, the impact of legal reserve rate has been positive on inflation rate. It has been shown that shock standard deviation reduces inflation rate in legal reserve rate. The rise in oil revenues leads the rise in economic growth rate, thus, reduced to zero up to two periods after applying the shock. With increasing oil revenues, by the government's expenses increase as well. Thus, it leads to the rise in demand, and also, economic growth indoors. Conclusions & Suggestions Based on the results, implementation of monetary policy in Iran has negative effect on economic growth, which is also consistent with the Iran Economy, so policymakers must use another policy for stimulating the economic growth. Put on the agenda.
Ali Haghighat; Khosrow Piraee; Mohammad Daneshnia
Abstract
Inflation has always been an economic problem and different solutions have been
proposed to control it. Although it is said that “higher output lowers inflation rate”
but it is true when other factors are constant. This study searches the answer to the
following question: “what is the effect ...
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Inflation has always been an economic problem and different solutions have been
proposed to control it. Although it is said that “higher output lowers inflation rate”
but it is true when other factors are constant. This study searches the answer to the
following question: “what is the effect of inflation rate and output in a case that
inflation rate and output growth has a volatility trend?”
To this aim we use seasonal data on Iran’s gross domestic product and consumer
price index from spring 1975 to summer 2008 and an exponential generalised
autoregressive conditional heteroskedasticity (EGARCH) model to show volatility
the variables.
The results of this study show that there is an autoregressive conditional
heteroskedasticity (ARCH) process in the output growth and inflation rate. We also
find that the inflation rate and output volatility increase Inflation rate and the output
volatility higher output growth. The hypothesis that the inflation rate volatility
lowers output growth can not be accepted.
