Identification of the Most Important Variables Affecting the Mechanism of Monetary Policy Transmission in the Iranian Economy with the Bayesian Model Averaging Approach

Document Type : Original Article

Authors

1 PhD Student, Faculty of Management and Economics, Islamic Azad University of Aligudarz,Aligudarz,Iran

2 Associate professor, Faculty of Islamic Studies and Economics, Imam Sadiq University, Tehran, Iran

3 Assistant professor, Faculty of Economics and Political Science , Shahid Beheshti University, Tehran, Iran

Abstract

Many economists agree that monetary policy affects the real sector of the economy in the short term, but their disagreement is over the channels of influence and their relative importance. The research's main purpose was to identify the most important mechanism of monetary policy transmission in the Iranian economy with the Bayesian model averaging approach.
Thirty-five variables affecting monetary policy transmission through the neoclassical channel and 22 variables affecting the monetary transmission mechanism in the non-neoclassical model were entered into the model. Finally, using the Bayesian averaging model approach, the most important variables affecting the monetary policy transmission mechanism were determined.
According to the results, it can be said that the money transmission mechanism in the Iranian economy is transmission through both neoclassical and non-neoclassical channels. According to the results, the neoclassical channel has a higher share in the monetary mechanism transmission system than the non-neoclassical channel. According to the results, the most important channels of monetary policy transmission in the Iranian economy are the effective real exchange rate variables, free-market interest rate, informal exchange rate deviation from the formal, total stock index growth rate, land price index in Tehran, the volume of money, total debt to the banking system and the growth rate are credits granted to the private sector.

Keywords

Main Subjects

References

Aleem, A. (2010). Transmission Mechanism of Monetary Policy in India. Journal of Asian Economics, 21(2) .pp. 186–197.
Allen, N. & Robinson, J. (2015). “Monetary Policy Effects in a Regime Switching Model”. Bank of Jamaica. Working Paper.pp.1-23
Aragón, E. K. D. S. B. & Portugal, M. S. (2009). “Asymmetric Effects of Monetary Policy in Brazil”. Estudos Econômicos (São Paulo).39(2). pp.277-300.
Bahadur, B.B. (2013). The Bank Lending Channel of Monetary Policy in Nepal: Evidence from Bank Level Data. NRB Economic Review, Nepal Rastra Bank, Research Department.25(2) .pp.43-65.
Bernanke, B. S. & Gertler, M. (1995). “Inside the Black Box: The Credit Channel of Monetary Policy Transmission”. The Journal of Economic Perspectives, 9(4).pp. 27-48
Boivin, J., Kiley, M. T. & Mishkin, F. S. (2010). “How has the Monetary Transmission Mechanism Evolved Over Time?”. National Bureau of Economic Research. No 15879.pp.1-88.
Bordon, A. R. & Weber, A. (2010). “The Transmission Mechanism in Armenia: New Evidence from a Regime Switching VAR Analysis”. IMF Working Papers.pp. 1-31.
Ciccarelli, M., Maddaloni, A. & Peydro, J. L. (2015). “Trusting the Bankers: A New Look at the Credit Channel of Monetary Policy”. Review of Economic Dynamics. 18(4) .pp.979-1002.
Dahlhaus, T. (2014). “Monetary Policy Transmission During Financial Crises: An Empirical Analysis”. Bank of Canada Working Paper. No 21.pp.1-38.
Ida, D. (2013). “Tobin's Q Channel and Monetary Policy Rules under Incomplete Exchange Rate Pass-Through”. Economic Modelling. 33.pp.733-740.
Jannsen, N., Potjagailo, G. & Wolters, M. H. (2015). “Monetary Policy During Financial Crises: Is the Transmission Mechanism Impaired?”. Kiel Working Paper, No 2005.pp.1-37.
Korobilis, D. (2013). “Assessing the transmission of monetary policy shocks using time-varying parameter dynamic factor models”. Oxford Bulletin of Economics and Statistics 75.pp. 157-179.
Krylova, E. (2002). “The Credit Channel of Monetary Policy. Case of Austria”. Institute for Advanced Studies. 111.pp. 1-52.
Li, N., & Lee, Y. (2015). The Bank-lending Channel of Monetary Policy Transmission in China: A Comparison between Chinese & Foreign Banks. Department of Economics, Korea & the world economy Seoul. 16.pp.167-193.
Lotfi, A. A. (2014). The Study of Relationship between Credit Channel of Monetary Policy & Real Estate Price in Iran. International Journal of Economy, Management & Social Sciences. 3(1) .pp. 88-94.
Meltzer, A. (1995). Monetary, Credit and (Other) Transmission Processes: A Monetarist Perspective. Journal of Economic Perspectives, 9(4).pp. 49-72
Mora, N. (2013). The bank lending channel in a partially dollarized economy. Journal of Applied Economics, Universidad del CEMA. 16.pp.121-151.
Ngozi, O. F., & Okoi, I. E. (2015). Monetary Policy Transmission Mechanism in Nigeria: A Comparative Analysis. International Journal of Economics & Finance. 7(8) .pp.229-239.
Nwosa, I. P. (2012).The Monetary Transmission Mechanism in Nigeria: A Sectoral Output Analysis. International Journal of Economics & Finance.4(1) .pp.204-212.
Parvin, S., Shakeri , A., & Ahmadian, A. (2014). Balance Sheet Effects of Monetary Policy on Banking System & Macroeconomic Variables of the Iranian Economy :A DSGE Approach. Iranian Economic Research Journal.77-115.
Peersman, G. (2011). “Bank Lending Shocks and the Euro Area Business Cycle”. Ghent University, Faculty of Economics and Business Administration. 11(766) .pp.1-31.
Torres, J. A. E. & Restrepo, S. S. (2016). “Asymmetric Effects of Monetary Policy on the Colombian House Prices”. Vniversitas Económica. 16(3) .pp.1-43.
Tunc, C. & Kılınç, M. (2016). “The Asymmetric Effects of Monetary Policy on Economic Activity in Turkey”. MPRA Paper. 72688.pp.1-29.
Ülke, V. & Berument, M. H. (2016). “Asymmetric Effects of Monetary Policy Shocks on Economic Performance: Empirical Evidence from Turkey”. Applied Economics Letters. 23(5) .pp.353-360.
Wu, J., Calem, P., & Covas, F. (2011). “The Impact of a Liquidity Shock on Bank Lending: The Case of the 2007 Collapse of the Private-Label RMBS Market”. Federal Reserve Board.pp. 1-33.
Zamurrad, J. P., & Rashid, A., Qurrat-Ul-Ain (2014). “Impact of Monetary Policy on Bank’ Balance Sheet in Pakistan”. International Journal of Economics & Finance. Published by Canadian Center of Science & Education. 6 (11) .pp. 187-196.
Zulkefly, A. K., Ngah W., Saini W. A., & Bakri A.K. (2010). “Bank lending channel of monetary policy: dynamic panel data evidence from Malaysia”. MPRA Paper 26157. University Library of Munich, Germany.pp. 1-22.
Economic Strategy
Volume 9, Issue 35 - Serial Number 35
November 2020
Pages 293-323

Files

Share

How to cite

Statistics