fereshteh jandaghi meybodi; Mohammad Ali falahi; Mahdi feizi
Abstract
The purpose of this study is to determine the preferences of the central bank of Iran and the optimal monetary policy rule using the optimal control method. so, we assumed that monetary authorities solving an optimization problem in backward looking expectation framework with regard to the constraints ...
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The purpose of this study is to determine the preferences of the central bank of Iran and the optimal monetary policy rule using the optimal control method. so, we assumed that monetary authorities solving an optimization problem in backward looking expectation framework with regard to the constraints of the economic structure, which includes four equations of aggregate supply, aggregate demand, money demand and government expenditures. using Ordinary Least Squares (OLS) and Seemingly Unrelated Regression Method (SUR), for the period of 1979-1397, the preferences of the monetary authorities that minimize the amount of Social welfare losses, were selected. The results indicate that the central bank should consider the deviation of monetary growth rate and then the output gap. Also, the optimal rule of monetary policy derived from the optimal preferences indicates that the central bank must react simultaneously to the changes in inflation, output gap, real exchange rates, government expenditure growth, oil and tax revenues growth.
Noor Olah Salehi Asfeji; Yaser Balaghi Inaloo
Abstract
Sidrauski's (1967) model of money in the utility function in the framework of a neoclassical growth model, has analyzed the role of money in the economy. His conclusions suggest that money is super-neutral in the steady state. The basic research problem is generalized Sidrauski's model according ...
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Sidrauski's (1967) model of money in the utility function in the framework of a neoclassical growth model, has analyzed the role of money in the economy. His conclusions suggest that money is super-neutral in the steady state. The basic research problem is generalized Sidrauski's model according to Reis (2007). Then, using optimal control approach, analysis the non-neutrality of monetary policy effects through nominal interest rate in the generalized Sidrauski's model. The results of calibration and sensitivity analysis of macroeconomic variables in Iranian economy indicate that as long as demand for real money balances elastic regard to nominal interest rate in non-separation utility function, monetary policy is not neutral in steady state. Therefore, a monetary policy that leads to a 3.6% decline in nominal interest rate growth, causing an increase in real money balances from 9.82 to 10.63. Finally, increased levels of capital per capita, output per capita and consumption per capita from 8.46, 2.90 and 2.38 to 9.42, 3.07 and 2.88. In addition, simulated results during the (1434-1344) in Iranian economy indicate that monetary policy, which leads to lower nominal rates, has increased the level of capital, production and consumption per capita continually.
Introduction
Although in macroeconomic literature related to rational expectations, where there is no monetary illusion and markets are settled, monetary policy has no real effect on the economy (Begg, 1980, Sidrauski, 1967, Lucas, 1972); but how the interaction between the real sector and Money is one of the questions that different economic schools have answered differently. In this context, various hypotheses have been put forward about the relationship between the real sector and the monetary sector of the economy: one hypothesis indicates that money is neutral in the long run. Other hypotheses suggest that money is super-neutral in the long run, but accepting or rejecting any of the above hypotheses affects the role of monetary policy in the economy.
In this regard, the main purpose of this study is to analyze the effects of monetary policy through nominal interest rates on the generalized Sidrasky model in the Iranian economy using the optimal control approach. The relevant analysis was first performed by calibrating and analyzing the sensitivity of macro variables in the steady state. Finally, the simulation of the macro-variable path is done.
Theoretical frame work
In the basic Sidrauski model (1967), as an extended model of the Ramsey model (1928), money is also entered for the first time along with consumption in the utility function. In this model, it is assumed that, first, the money supply increases at a constant rate over time. Second, in a steady state, the real balance of money is constant over time. Therefore, according to these two conditions, the super-neutral results of money are obtained.
Methodology
In this model, the economy as a unit is made up of the same households with an unlimited lifetime, and the representative households benefit from the actual consumption of goods and the actual balance of money. It is also a function of desirability, continuity, good behavior, mostly concurrent and increasing relative to and the actual balances of money. Optimal control methods are used to solve the model and reach the optimal consumption path, real money balances and capital. By forming the Hamiltonian function, we will have maximization for the problem:
(1)
Where the nominal interest rate. is marginal utility of consumption. Necessary conditions are:
(2)
(3)
(4)
Using Equilibrium Relationships (2) and (3) we will have:
(5)
Results & Discussion
The results of simulating the path of macro-pattern variables indicate that monetary policy, which leads to lower nominal interest rates, has continuously increased the level of capital, production, consumption, and real money balances.
Conclusions & Suggestions
The results of solving the model in the steady state indicate that with the elasticity of real money demand relative to the nominal rate in the inseparable utility function, the use of monetary policy that reduces the nominal interest rate, leads to increase in demand for real money. Eventually, it reduces the real interest rate. So, it leads to an increase in the level of per capita capital, production and consumption. Therefore, monetary policymakers are encouraged to apply monetary policy in line with optimal monetary policy to increase nominal variables through the channel of lower nominal interest rate channels.
Mansor Zarra Nezhad; Ebrahim Anvari
Abstract
In recent decades adopting unreasonable monetary and fiscal policies and
uncertainty in model-making and analysis of data, has become unsatisfactory in
macro goals. In a new Keynesian dynamic stochastic general equilibrium (DSGE)
model to study Iran economy, uncertainty is modeled as uncertainty about ...
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In recent decades adopting unreasonable monetary and fiscal policies and
uncertainty in model-making and analysis of data, has become unsatisfactory in
macro goals. In a new Keynesian dynamic stochastic general equilibrium (DSGE)
model to study Iran economy, uncertainty is modeled as uncertainty about the true
structural parameters that characterize the economy. In particular, the policymaker
does not know the true numerical values nor the statistical distribution of the fiscal
and monetary policy. The model considers the dependence of Iran economy to oil
export. Oil sector and oil export revenues have been modeled as a separate sector
and one of the government budget resources, respectively. Like in other New
Keynesian DSGE model, firms face nominal rigidities and the intermediate-good
sector is monopolistically competitive. Impulse response function of shocks show
that non-oil output increases in response to productivity, oil revenues, money growth
rate and government expenditure shocks. The finding shown that a policymaker that
follows a control approach under uncertainty sets interest rates less aggressively to
react against fluctuations in inflation or the output gap than in the case of absence of
uncertainty. Model uncertainty has the potential to change importantly how
monetary and fiscal policy should be conducted, making it an issue that can not be
ignore. In main result, policy performance can be improved if the discretionary
policymaker implements an optimum policy in the model. In effect, a fear of modeluncertainty can act similarly to a commitment mechanism. When there is uncertainty
about the persistence of inflation, it is optimal for policy makers to respond more
aggressively to shocks than if the parameter were known with certainty, since the
avoid bad outcomes in the future.
