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QJER 2024, 24(3): 283-312 |
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ghobadi S. Threshold Effects, Sacrifice Ratio and Government Debt The Smooth Transition Regression Approach. QJER 2024; 24 (3) : 11
URL: http://ecor.modares.ac.ir/article-18-72112-en.html
URL: http://ecor.modares.ac.ir/article-18-72112-en.html
Assistant Professor of Economics, Department of Economics, Islamic Azad University, Isfahan (Khorasgan) Branch, Isfahan, Iran , sghobadi@khuisf.ac.ir
Abstract: (826 Views)
Introduction
The significance of inflation in the economic system and the production reduction or loss resulted from an anti-inflation policy as an integral part of inflation control policies, should never be underrated. It is critically important to study the sacrifice ratio and influencing factors which measure the accumulated losses in real production as a result of one percent permanent reduction in the inflation. It is considered as a criterion which makes it possible to somehow evaluate the effects of inflation control policies imposed by the central bank. Therefore, in the present research, the factors influencing the sacrifice ratio are identified by emphasizing the government debt in Iran and using seasonal data (1997-2021).
Methodology
In order to achieve the goal of the research, the following relationship is considered:
To achieve the goal of this research, the Smooth Transition Regression Model (STR) is used.
Findings
The results obtained from the estimation of the model indicate that
Discussion and Conclusion
In relation to the positive effect of
Expansionary monetary policy can lead to excess demand in the economy and thus cause an increase in the general level of prices, and the pressure to increase prices can be reduced through imports and thus by changes in the balance of payments. In fact, trade openness may shift some of the inflationary pressure to the balance of payments, resulting in lower average increases in the general price level. The positive effect of increasing speed of reducing inflation, in the second regime has led to an increase in the sacrifice ratio.
In general, the improvement in the transparency index will be effective in reducing the sacrifice ratio. In case of transparency in Central Bank data, it could be potentially considered as one of the key tools in the field of monetary policy management. In fact, the transparency of information will lead to an increase in the commitment of Central Bank in dealing with inflation. It could also control inflation and ultimately lead to a reduction in the cost of deflationary policies, and sacrifice ratio decrease.
Inflation targeting by means of public announcement of official quantitative targets for the rate of inflation over one or more times horizons could be considered as a workable policy. By explicit declarations, low and stable inflation will be assumed as the main goal of monetary policy in the long run. Inflation targeting minimizes the motivation of Central Bank to show opportunistic behavior and this may increase the credibility of this regulatory institution in the loner term. Subsequently, the general public will adjust their inflation expectations in a fast state and therefore the costs of deflationary policies will decrease in return.
The significance of inflation in the economic system and the production reduction or loss resulted from an anti-inflation policy as an integral part of inflation control policies, should never be underrated. It is critically important to study the sacrifice ratio and influencing factors which measure the accumulated losses in real production as a result of one percent permanent reduction in the inflation. It is considered as a criterion which makes it possible to somehow evaluate the effects of inflation control policies imposed by the central bank. Therefore, in the present research, the factors influencing the sacrifice ratio are identified by emphasizing the government debt in Iran and using seasonal data (1997-2021).
Methodology
In order to achieve the goal of the research, the following relationship is considered:
To achieve the goal of this research, the Smooth Transition Regression Model (STR) is used.
Findings
The results obtained from the estimation of the model indicate that
Discussion and Conclusion
In relation to the positive effect of
Expansionary monetary policy can lead to excess demand in the economy and thus cause an increase in the general level of prices, and the pressure to increase prices can be reduced through imports and thus by changes in the balance of payments. In fact, trade openness may shift some of the inflationary pressure to the balance of payments, resulting in lower average increases in the general price level. The positive effect of increasing speed of reducing inflation, in the second regime has led to an increase in the sacrifice ratio.
In general, the improvement in the transparency index will be effective in reducing the sacrifice ratio. In case of transparency in Central Bank data, it could be potentially considered as one of the key tools in the field of monetary policy management. In fact, the transparency of information will lead to an increase in the commitment of Central Bank in dealing with inflation. It could also control inflation and ultimately lead to a reduction in the cost of deflationary policies, and sacrifice ratio decrease.
Inflation targeting by means of public announcement of official quantitative targets for the rate of inflation over one or more times horizons could be considered as a workable policy. By explicit declarations, low and stable inflation will be assumed as the main goal of monetary policy in the long run. Inflation targeting minimizes the motivation of Central Bank to show opportunistic behavior and this may increase the credibility of this regulatory institution in the loner term. Subsequently, the general public will adjust their inflation expectations in a fast state and therefore the costs of deflationary policies will decrease in return.
Article number: 11
Keywords: Sacrifice Ratio, Government Debt, Inflation Targeting, Transparency of Monetary Policies, Smooth Transmission Regression Model
Article Type: Original Research |
Subject:
Macroeconomics and Monetary Economics
Received: 2023/10/24 | Accepted: 2023/11/15 | Published: 2024/09/7
Received: 2023/10/24 | Accepted: 2023/11/15 | Published: 2024/09/7
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