Economic Research and Perspectives

Economic Research and Perspectives

The Role of the Banking Sector in the Dynamics of Iran's Macro-economy within a Dynamic Stochastic General Equilibrium Model

Authors
morteza dehghandorost 1
Hassan Heidari 2
sahar bashiri 3
1 Ph.D. Candidate in Economics, Faculty of Economics and Management, Urmia University
2 Professor of Economics, Faculty of Economics and Management, Urmia University
3 Assistant Professor of Economics, Hazrat Masoumeh University, Qom, Iran
Abstract
This research examines the macroeconomic variables reaction and banking sector with the financial and monetary shocks using dynamic stochastic general equilibrium model (DSGE). Considering the banking facilities and utilization of seasonal data for the period 1991-2017, the banking sector behavior in the economic dynamics is studied. Therefore, the linear-logarithmic form of the equations is obtained after specifying the model, optimizing, and extracting the first-order conditions. The model is simulated under two different scenarios by considering bank facilities as two types of capital facilities and working capital, and not considering the facilities. The results show that by occurring financial and monetary shocks, the instant reaction of variables is consistent with the theoretical bases of the economy, which indicates the acceptable ability of the model in accurately fitting Iran's economy. Furthermore, comparing the moments of the simulated variables with the real data, the success of the model in simulating the governing facts of the economy is confirmed. Finally, the results show that banking facilities could reduce the range of economic fluctuations and increase the stability of the economy. This issue can be mentioned by the economic policymakers in order to reach economic sustainable development.
Keywords
Capital Facility
Working Capital Facility
Monetary Shock
Financial Shock
Dynamic Stochastic General Equilibrium Model

Subjects

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Economic Research and Perspectives
Volume 22, Issue 2
Summer 2022
Pages 217-244