Investigating the impact of financial and monetary shocks on inflation, emphasizing the intermediary role of banks Using TVP-FAVAR models

Subject Areas : Financial Economics

نعمت فلیحی ¹ , hossein Amiri ² , Sedigheh Soltani ³

1 - استادیار دانشکده اقتصاد و حسابداری دانشگاه آزاد اسلامی واحد تهران مرکزی. تهران،‌ایران
2 - Faculty of Economics, Kharazmi University
3 - Ph.D. in Economics, Islamic Azad University of Centeral Tehran Branch

Received: 2021-01-23 Accepted : 2024-08-05 Published : 2024-09-11

Keywords: Monetary Policy, Fiscal Policy, Banking Intermediary, TVP-FAVAR Model,

Abstract :

The current study uses TVP-FAVAR models to investigate the effect of monetary and financial shocks on inflation, with a focus on the intermediary role of banks, from 1370-1 to 2018-4. Main variables influencing inflation are considered to be money volume, current expenditures, construction expenditures, taxes, and the bank intermediation index. The rate of return variable of the speculative sector is considered as an unobservable and hidden variable. The findings show that not only the bank intermediation index, but also the variables of liquidity, construction expenses, and current expenses, have a positive and significant effect on the inflation rate, and that each standard deviation of change in these variables between one and three years has an effect on the country's inflation stability and permanence. Based on the model's findings, policies such as floating the bank interest rate and credit indexing can be implemented, as can supply-side policies such as increasing the level of work culture, increasing human resource productivity, and changing the labor market's composition. The annual anchoring of government spending in four-year periods, as well as the adoption of policies that reduce the uncertainty of inflation, can be effective in adjusting the inflation rate for the ratio of budget deficit or government debt to GDP.

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