Financial monetary economy
Sayed Abolfazl Vaziri; Abbas Yazdani; Mahdi Sadeghi
Abstract
1- INTRODUCTION
Compulsory loan and its macroeconomic effects, especially its effect on inflation, have always been discussed by economists in Iran. In the current research, the effect of credit compulsory loan on inflation has been evaluated. In order to estimate the model we used data from ...
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1- INTRODUCTION
Compulsory loan and its macroeconomic effects, especially its effect on inflation, have always been discussed by economists in Iran. In the current research, the effect of credit compulsory loan on inflation has been evaluated. In order to estimate the model we used data from 1990-2018. The data have been measured by using vector autoregression (VAR) method. According to the results of the research, it is suggested to replace the policy of granting compulsory loan with other existing policies such as product coupon and purchase remittance in the field of supporting weak households and value chain financing to increasing supply.
2- THEORETICAL FRAMEWORK
Compulsory loan is a loan that is imposed on the banking system according to the notes of the budget laws and other laws. In other words, banks are responsible for granting assigned loans based on the approvals of authorities outside the banking system. These loans are one of the government's policies to support the vulnerable sections of the society. Every year, in note 16 of the country's budget, a decision is made by the government and the parliament in relation to the debt relief.
3- METHODOLOGY
In this research, the data is time series. To analyze the data we choose from various models of the vector autoregression (VAR), which is actually an unrestricted method in econometrics. the vector of variables is a function of its own intervals and other endogenous variables. The vector autoregression method has the following feature: all variables in this model are endogenous, the results of the model in many cases are better than the results of complex models; It is like simultaneous equations, estimation of the model is simple.
4- RESULTS & DISCUSSION
According to the tests, it has observed that a one percent increase in the compulsory loan will increase the consumer price index by 0.4 percent; one percent increase in the nominal interest rate also leads to a 1.25% increase in the consumer price index. Also, the effect of the instant shock of the loan facility rate on the consumer price index and the nominal interest rate is not significant. Next, in the analysis of variance method, the contribution of impulses entered on the model variables was evaluated and it was found that in the 5 first periods (of 10 periods) the largest prediction error of the consumer price index rate variable is explained by the LCPI variable. From the 6th period to the 8th period, however, the explanatory contribution of the nominal interest rate is higher. In the 9th and 10th periods, the compulsory loan rate has the largest contribution in explanation the variable prediction error of the consumer price index.
5- CONCLUSIONS & SUGGESTIONS
The budgeting system directly and indirectly affects monetary policies. One of the channels of this influence can be followed in the budget notes. Every year, in some laws of the country, especially in the annual budget laws, the banking system is burdened with tasks, and in some of these cases, due to the preferential rate of these loans, or in other cases, due to the high default of these loans, the country's banking system has suffered imbalance. In this regard, increasing of the monetary base was not only through the growth of banks' balance sheets. Rather, the financial dominance of the government and the impact of financial rulings on the balance sheet of the central bank in the form of borrowing from the central bank, buying government bonds has also caused the expansion of the government's debt and the net foreign assets of the central bank, as well as the monetary base.
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.
