State Dependent Effects of Monetary Policy on Macroeconomic Dynamics

Subject Areas : Computational economics

Mohsen Toutichobar ¹ , Seyed Yahya Abtahi ² , jalil totonchi ³ , Zohreh tabatabaeinasab ⁴

1 - Ph.D. student, Department of economics, Yazd Branch, Islamic Azad University, Yazd, Iran
2 - Assistant professor, Department of economics, Yazd Branch, Islamic Azad University, Yazd, Iran
3 - Assistant professor, Department of economics, Yazd Branch, Islamic Azad University, Yazd, Iran
4 - Assistant professor, Department of economics, Yazd Branch, Islamic Azad University, Yazd, Iran

Received: 2024-06-14 Accepted : 2024-09-25 Published : 2024-10-23

Keywords: Asymmetric Effect, Macroeconomic Dynamics, Markov Switching Exponential GARCH with Fixed Transition Probability Model, Monetary Aggregates,

Abstract :

 

Extended Abstract

Purpose

Monetary policy as one of the main means of controlling and regulating the economy, has a significant effect on economic variables such as exchange rates, inflation and economic growth. The effect of monetary policy on the trend of macroeconomic variables can cause significant changes in the country's economic situation. Based on this, in the present study, the state dependent effects of monetary aggregates on macroeconomic dynamics during the period of 2001:02-2021:04 have been investigated.

Methodology

The result of the review of past studies indicates that in each of the studies, the effect of one of the monetary variables (money volume, liquidity, monetary base, bank interest rate) on inflation and economic growth has been investigated. One of the differences between the present study and the previous studies is that the variables of money volume, liquidity and monetary base are considered as monetary aggregates and the effect of each of these variables on inflation and economic growth in different regimes is investigated. It has been placed to determine which monetary variable has the greatest effect on macroeconomic variables in different economic regimes, and also to determine the symmetrical or asymmetrical effect of monetary variables on macroeconomic variables. Also, due to changes in economic policies and political crises, there may be a structural failure in the studied time series, which has not been considered in previous studies, so another feature of the present study is that by using Lee and Strazisich's unit root test (2003), structural breakpoints of monetary totals and macroeconomic variables have been identified and after detrending the examined variables according to the method suggested by Lee and Strazisich (2003), the residuals of the studied variables have been extracted and specified in the model; Therefore, due to the occurrence of structural failure, time series models with fixed parameters are not sufficient to describe such changes (Piger, 2007) and the appropriate approach for modeling such behaviors is state-dependent models that have a non-linear structure; In the current study, the macroeconomic variables undergo a change of status or regime change according to the effect of monetary aggregates, that is, in each regime, monetary variables have a different effect on macroeconomic variables; Therefore, in order to include this change in the modeling process, models in the form of Markov regime change regression models have been used, and in order to prevent multiple collinearity between monetary variables, each monetary variable are specified separately in the conditional variance equation. The results of Markov switching GARCH model with fixed transition probability (MS-FTP-GARCH (1,1)) indicate money volume, liquidity and monetary base in both low and high inflation regimes have a positive and significant effect on inflation, Due to the different coefficients of monetary variables, the asymmetric effect of monetary variables on inflation is evident. The results of examining the reaction of economic growth to monetary aggregates in different states show that in the regimes of low and high economic growth, monetary variables have a negative and significant effect on economic growth and this effect is asymmetric. Also, the results of the estimation of six separate Markov switching GARCH model with fixed transition probability (MS-FTP-GARCH (1,1)) show that among the monetary aggregates, the monetary base variable has the greatest effect on inflation and economic growth.

Finding

 According to the results of the present study, in the low and high inflation regime, the monetary base variable plays a significant role in the escalation of inflation because the increase in the monetary base causes the growth of liquidity in the country, and as a result, the speed of demand in the economy exceeds the speed of supply in the economy, and as a result, it leads to inflation in the country; Also, the results show that in both recession and boom regimes, the increase in the monetary base leads to an increase in the amount of money and liquidity. With the increase of banknotes and certificates in the hands of the people, which means the increase in the amount of money, inflation has increased and this factor leads to a decrease in purchasing power, which ultimately causes a decrease in the demand for final goods and services and causes a decrease in economic growth.

Conclusion

 Also, as much as the volume of liquidity increases, it causes inflation and a decrease in the value of real assets and ultimately leads to a decrease in GDP and a decrease in economic growth. It leads to inflation, so one of the solutions to achieve inflation reduction is monetary discipline and prevention of liquidity intensification. One of the first steps to prevent the increase in liquidity is to balance the government's expenses and revenues; Also, considering that the increase in the monetary base and the subsequent increase in the volume of money and liquidity lead to a decrease in economic growth, governments encourage investors by measures such as reducing the risk of productive investments, reducing the time of implementing productive investment projects, and increasing the productivity of the production sector. to invest in productive economic sectors and liquidity is directed towards production and economic growth is formed. Therefore, the control of the components of monetary totals, considering the importance of each one in low and high inflation and economic growth situations, can be considered as a strategic point for economic policy makers.

 

 

References:

1. ایزدخواستی، حجت، (1397). تحلیل ت‌ثیر سیاست‌های پولی در الگوی تعادل عمومی پویا بر تورم و رفاه: رویکرد پول در تابع مطلوبیت. تحقیقات مدل‌سازی اقتصادی، دوره 8، شماره 31، ص 71-101.
2. برانسون، ويليام اچ، (1381). تئوري‌هاي سياست‌هاي اقتصاد كلان، ترجمه عباس شاكري، تهران: نشرني.
3. حاجی قاسمی، شهناز، نجاتی، مهدی، و صالحی اسفیجی، نورالله، (1396). ارزیابی اثرات نرخ بهره واقعی و نرخ ذخیره قانونی بر متغیرهای منتخب کلان اقتصاد ایران، فصلنامه نظریه‌های کاربردی اقتصاد، دوره 4، شماره 3، ص 117-142.
4. خلیل زاده، جواد، حیدری، حسن، و بشیری، سحر، (1399). تأثیر مخارج دولت و حجم اعتبارات بانکی با لحاظ سیاست‌های پولی بر رشد اقتصادی در قالب یک مدل DSGE (مطالعه موردی ایران)، پژوهش‌های رشد و توسعه اقتصادی، دوره 10، شماره 39، ص 75-92.
5. خلیلی عراقی، منصور، و رحیمزاده‌نامور، منصور، (1398). ناسازگاری زمانی سیاست پولی و اثرگذاری آن بر نوسانات نرخ ارز در ایران. نشریه علمی سیاستگذاری اقتصادی. سال 11، شماره 21، ص 217-240.
6. ریحانی محب سراج، ندا، فلاحی، محمدعلی، و احمدی شادمهری، محمدطاهر، (1400). توسعه مالی و اثربخشی سیاست‌های پولی ضدتورمی در ایران، بررسی مسائل اقتصاد ایران، دوره 8، شماره 2، ص 189-223.
7. زرانژاد، منصور، منتظرحجت، امیرحسین، و معتمدی، سحر، (1392). بررسی تأثیر سیاست‌های پولی و مالی بر شاخص‌های کلان اقتصاد ایران. اقتصاد مقداری (بررسی‌های اقتصادی)، دوره 10، شماره 3، ص 115-138.
8. شاکری، عباس، (1387). تغییرات رشد نقدینگی در اقتصاد ایران (روند و علل)، تهران، مرکز پژوهش‌های مجلس شورای اسلامی
9. شریفی رنانی، حسین، هنرور، نغمه، دایی کریم زاده، سعید، و امرالهی پورشیرازی، فرزانه، (1388). بررسی اثرات سیاست پولی بر تولید ناخالص داخلی از طریق کانال وام‌دهی سیستم بانکی در ایران، مدلسازی اقتصادی، دوره 3، شماره 4، ص 27-48.
10. فتاحی، فهمیده، شهبازی، کیومرث، و حکمتی فرید، صمد، (1399). بررسی رابطه نامتقارن بی‌ثباتی مالی، سیاست پولی و رشد اقتصادی در ایران. پژوهش‌های پولی بانکی، دوره 13، شماره 44، ص 297-340.
11. فطرس، محمدحسن، توکلیان، حسین، و معبودی، رضا، (1393)، اثر تکانه پولی بر رشد اقتصادی و تورم ایران رهیافت تعادل عمومی تصادفی پویا، دوره 21، شماره 8، ص1-29.
12. فطرس، محمدحسن، و معبودی، رضا، (1395). اثر تکانه‌های پولی و مالی بر رشد اقتصادی و توزیع درآمد ایران: رویکرد تعادل عمومی تصادفی پویا، مطالعات اقتصادی کاربردی ایران (مطالعات اقتصادی کاربردی)، دوره 5، شماره 19، ص 59-82.
13. فلاحی، فیروز، (1393). علیت مارکوف سوئیچینگ و رابطه تولید و پول در ایران، مطالعات اقتصادی کاربردی ایران (مطالعات اقتصادی کاربردی)، دوره 3، شماره 11، ص107-128.
14. متفکرآزاد، محمدعلی، منیعی، امید، و غفارنژادمهربان، آیدین، (1390). مدل‌سازی هوشمند اثرات نامتقارن شوک‌های پولی بر تولید در اقتصاد ایران (کاربردی از شبکه‌های عصبی مصنوعی). تحقیقات مدل‌سازی اقتصادی، دوره 1، شماره 4، 83-102.
15. نیازی محسنی، محسن، شهرستانی، حمید، هژبرکیانی، کامبیز، و غفاری، فرهاد، (1399)، بررسی اثر شوک‌های سیاست پولی و درآمدهای نفتی بر تورم و رشد اقتصادی در ایران، دوره 27، شماره 19، ص 29-46.
فهرست منابع لاتین
16. Ackley, G, (1960). Macroeconomic theory. New York, NY: Macmillan.
17. Akalpler, E., and Duhok, D, (2018), Does monetary policy aƛect economic growth: evidence from Malaysia, Journal of Economic and Administrative Sciences, 34(1), 2-20.
18. Amadeo, K, (2012). Obamacare Bill: A Summary of the Bill’s 10 Titles.
19. Brunetti, C, Scotti, Ch, Mariano, R.S., and Tan, A.H.H, (2008). Markov switching GARCH models of currency turmoil in Southeast Asia, Emerging Markets Review.
20. Burriel, P, Jesus, F-V., and Juan F. Rubio-Ramirez, (2010). MEDEA: A DSGE model for the Spanish economy, Research Discussion Paper.
21. Christiano, L.J., and Fitzgerald, T.J. (2003). The Band Pass Filter. International Economic Review, 44, 435-465.
22. Chuku, A. (2011). Testing Long-Run Neutrality Propositions in a Developing Economy: The Case of Nigeria, Journal of Economic Research, 16, 291-308.
23. Dueker, M.J, (1997). Markov switching in GARCH processes and mean-reverting stockmarket volatility, Journal of Business and Economic Statistics.
24. Fitra, W. (2014). Interdependency between monetary policy instruments and Indonesian economic growth, In Journal of Economics and International Finance, 6 (9), 203–210.
25. Folawewo, A.O., and Osinubi, T.S, (2006). Monetary Policy and Macroeconomic Instability in Nigeria (A Rational Expectation Approach), Social Science, 12(2), 93-100.
26. Gray, S.F, (1996). Modeling the Conditional Distribution of Interest Rates as a Regime-Switching Process, Journal of Econometrics, 42(1), 27-62.
27. Lee, J., and Strazicich, MC. (2003). Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks. Review of Economics and Statistics, 85(4), 1082-1089.
28. Lipsey, M. W., & Wilson, D. B, (2001). Practical meta-analysis. Thousand Oaks, CA: Sage Publications.
29. Long, J. B., and Plosser, C. I, (1983), Real Business Cycle, Journal of Political Economy, Published By: The University of Chicago Press, 91(1), 39-69.
30. McMahon, G, (2007). Measuring short-run inflation for Central Bankers. Federal Reserve Bank of St. Louis Review, 79, 3-8.
31. Mankiw, G., and Romer, D, (1991). New Keynesian Economics, Cambridge, MIT Press.
32. Mishkin, F. S, (1982). Does Anticipate Policy Matter? An Econometric Investigation,, Journal of Political Economy, 90(2).
33. Piger, J, (2007). Econometrics: Models of Regime Changes, In Encyclopedia of Complexity and Systems Science, 2744-2757.
34. Pigou, A.C, (1947). Economic progress in a stable environment. Economica, 14, 180-188.
35. Robinson, T, (2013). Estimating and Identifying Empirical BVARDSGE Models for Small Open Economies, Research Discussion Paper, RDP 2013-06.
36. Saibu, O., and Musbauden, A, (2018). Monetary Policy Cyclicality, Industrial Output and Economic Growth Interactions in Nigeria, 22(2), 457-470.
37. Sang, T.M, (2019). Impact of Monetary Policy on Economic Growth: Empirical Evidence in Vietnam, International Journal of Social Science and Economics Invention, 05(10).
38. Setiawati, E., Wijayanti, O.A., Yuma Khosyi, A. Afifah., Anggraini, L.W., Divananda, H, (2024). Analysis Of The Influence Of Monetary Policy On Inflation Rates And Economic Growth In Indonesia, Jurnal Ekonomi, Manajemen dan Akuntansi, 2(1).
39. Traficante, G, (2012). Uncertain Potential Output: implications for monetary policy in small open economy, Working Paper No. 22.
40. Vitalii, B., and Alina, R, (2020). The Impact of Monetary Policy on Economic Growth in Ukraine, Ekonomista, 1, 94-115.