Designing a Dynamic Stochastic General Equilibrium Model to Investigate the Effect of Monetary Policy on Macroeconomic Variables from the Bank Lending Channel

Document Type : Scientific paper

Authors

1 Assistant Professor, Department of Islamic Economics, Faculty of Economic and Administrative Sciences, Qom University

2 استاد دانشکده اقتصاد دانشگاه تهران

3 دکتری اقتصاد دانشگاه تهران

Abstract

To make decisions about monetary policies, monetary policymakers must accurately assess the duration and extent of the policy's effect on the economy. This accurate evaluation of policies requires understanding the mechanisms according to which monetary policy affects the real sectors of the economy. Based on the studies, there is an agreement that money is neutral in the long term and has no effect on the real sector of the economy, but there is no consensus on the effect of monetary policy on real variables in the short term. Therefore, the short-term relationship between nominal and real variables is crucial for implementing monetary policy and needs further investigation. This study aims to investigate the impact of monetary policy through bank facilities on macro variables in Iran's economy. To analyze the results, the random dynamic general equilibrium method was used in terms of the banking system’s structure in the period of 1989-2022 based on the frequency of seasonal data. The advantage of the present study is in the modeling of the balance sheet of the banking system and its relationship with the balance sheet of the central bank and the modeling of the effect of monetary policy from the path of bank facilities on the variables of the real and nominal sectors of the economy. The statistical analysis section compared and evaluated the impact of the monetary policy index on banking and macroeconomic variables. Based on the results obtained, it can be stated that macroeconomic variables, including production, inflation, consumption, and investment, have shown a positive reaction to the impulse from banking facilities as a way to influence monetary policy.

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References

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Macroeconomics Research Letter
Volume 18, Issue 38
December 2023
Pages 57-80

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History

  • Receive Date: 11 October 2023
  • Revise Date: 09 January 2024
  • Accept Date: 09 January 2024

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