مجله توسعه و سرمایه (Nov 2022)
Impact Analysis of Macroeconomic Shocks on Monetary and Fiscal Policy Variables in Iran with Taylor Rule Approach: BVAR Method
Abstract
Objective: The economies of countries have always been affected by various shocks from the supply and demand side during different periods, and this phenomenon causes deviations in macroeconomic variables. Examining the effect of key macroeconomic variables on these shocks is of special importance, especially in developing countries. The purpose of this study is to impact analysis macroeconomic shocks on monetary and fiscal policy variables in Iran with the Taylor rule approach in the period 1967-2020.Method: In this study, the impact of macroeconomic shocks on monetary and financial policy variables in Iran has been analyzed with the approach of Taylor's rule: BVAR method.The Bayesian vector auto regressive (BVAR)has been used. In this regard, the regularity or discretion of the central bank's monetary policies and the government's financial policies in Iran have been studied based on Taylor's rule, and the Bayesian vector autoregression (BVAR) model has been used to investigate the instantaneous response and variance analysis. Due to avoiding the use of restrictive dependent forms, vector autoregression approach has been used in this research. One of the expanding and new methods in this field is the use of the Bayesian approach. By combining the initial beliefs of the researcher and the information in the data, the Bayesian method automatically shrinks different models, including vector autoregression models, and as a method to overcome this problem, it has been increasingly popular among researchers. Also, one of the advantages of Bayesian methods is that you can increase the variables of the model without worrying about reducing the degree of freedom. In the form of Bayesian vector autoregression model, this study has investigated Taylor's rule in two models. In the first model, the reaction of monetary policy to macroeconomic shocks and the second model to the reaction of financial policy to macroeconomic shocks in Iran have been analyzed based on Taylor rule. Whit using Theil and RMSE index,it was determined that the determined former Literman-Minnesota function provides the most accurate prediction and The growth rate of the monetary base and government spending have been used as monetary and financial policy tools.The desired model is estimated using Eviews 9.0 software.Results: The findings of the research based on the instantaneous reaction functions in the first model show that monetary policy makers have implemented an expansionary policy in relation to the impulse of the production gap in the short term, and the effect of this impulse will disappear in the long term. Also, the results of the second model show that financial policy makers have implemented an expansionary policy in relation to the impulse of the production gap in the short and long term. In the following, the central bank has shown a contractionary behavior in relation to the impulses of inflation in the short term, and the effect of the impulse will be lost in the long term, and the government has shown a contractionary behavior in relation to the impulse of the consumer price index in the short term and has implemented an expansionary policy in the long term.Also, relative to one unit standard deviation of the real exchange rate, the monetary and fiscal policies showed expansionary and contractionary behavior in the short term, and the impact of the impulses disappeared in the long term. Further, the results of variance analysis show that in the short and long term, the production gap explains the most changes in the growth rate of the monetary base and government spending.Conclusion: The results showed that the central bank in the short run has that the discretionary behavior towards the impulse caused by the output gap is against the Taylor rule and does not react in the long run. The reaction of monetary policymakers to the shock of inflation in the short run is according to the Taylor rule and in the long run inflation shocks will disappear and financial policymakers to the shock of the consumer price index in the short run according to the Taylor rule and in the long run is against the Taylor rule.Also, by creating a momentum in the real exchange rate, the effect of the momentum on the growth rate of the monetary base and government expenditures, negative and positive in the short run and in the long run, respectively, will not be permanent and will disappear.The results of analysis of variance show that in the short and long run the output gap explains the largest changes in the growth rate of the monetary base and government expenditures. The results show that monetary policies in Iran follow financial policies, and this way of financial communication between the government and the central bank is one of the important factors of the ineffectiveness of monetary policies. To evaluate the effect of monetary policy on the goals of controlling inflation and establishing production stability in the economy, the design of the rule Optimal monetary policy is very important and recommended. Especially since Iran's economy, due to various reasons, has conditions where fluctuations and unexpected shocks are not rare on the economy.In this way, it is possible to propose the rule strategy with discretion as a suitable strategy for guiding the monetary and financial policy in Iran.
Keywords
