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Showing 5 results for Central Bank
Estimating Optimal Monetary Policy Rule in Iran based on Hybrid Models
Mrs. Fereshteh Jandaghi Meybodi, Dr Mohammad Ali Falahi, Dr Mahdi Feizi,
Volume 19, Issue 3 (8-2019)
Abstract
The purpose of this study is to estimate a “hybrid” version of the optimal monetary policy rule in Iran using the optimal control theory. To do this, it is assumed that monetary authorities solve an optimization problem with regard to the constraints of economic structure, which includes five equations of aggregate supply, aggregate demand, exchange rate, demand for money and government expenditure. First, the structural equations’ parameters are estimated using ordinary least squares (OLS) and seemingly unrelated regression (SUR) methods during 1978-2016. Then, the preferences of the monetary authorities for stabilizing inflation and output, and smoothing liquidity growth are chosen with the aim of minimization of social welfare loss. The results indicate that the central bank should consider the deviation of monetary growth rate and the output gap. In addition, the optimal rule of monetary policy derived from the optimal preferences indicates that the central bank must react simultaneously to the changes in inflation, output gap and real exchange rate, in which the role of output gap is of great importance.
 
Analysis of the Effect of Central Bank Transparency on Exchange Rate Fluctuations in the Iranian Economy
Mrs. Elham Hagehashemi, Dr Nasrin Mansouri, Dr Behrouz Sadeghi Amroabadi, Dr Mehdi Fadae,
Volume 21, Issue 2 (6-2021)
Abstract
Exchange rate is one of the most influential factors affecting Iran's macroeconomic variables. Exchange rate fluctuations in Iran have always been one of the major challenges for policymakers. On the other hand, many central banks today consider transparency as one of the main and vital priorities in achieving the effectiveness of monetary policy and communicating effectively with the people and being accountable. This transparency can affect macroeconomic expectations and the exchange rate. In this study, the effect of central bank transparency on exchange rate fluctuations is investigated using the ARDL method over the period 1981-2018. This study is based on analytical, applied and correlational research methods, which uses time-series econometric regression model. The transparency of the central bank, as independent variable, is measured by Dincer & Eichengreen index, and exchange rate fluctuations, as dependent variable, are constructed by GARCH method. The results show that the transparency of the central bank reduces exchange rate fluctuations in both short run and long run, and there is a long-term synergistic relationship between research variables.
The Response of Monetary and Fiscal Policies to the Output Gap in Iran with the Taylor Rule Approach: The Quantile Method
Mrs. Faezeh Zorriyeh Mohammadali, Dr Mohammadreza Nahidi Amirkhiz, Dr Ali Paytakhti Oskooe, Reza Ranjpour,
Volume 21, Issue 4 (11-2021)
Abstract
One of the most important issues in monetary and fiscal policy analysis is their efficiency or effectiveness, which tells policymakers about effectiveness of policies. In general, the effectiveness or effectiveness of monetary and fiscal policies refers to the extent to which they affect equilibrium national output or income.  Therefore, in order to achieve its goals, the policymaker should be able to respond appropriately to the production gap and inflation accordingly, a policy rule covering the goals of the central bank should be used. In this study, in the framework of Taylor rule, the response of monetary and fiscal policies to the output gap has been investigated in the Iranian economy using the Quantile regression method over the period 1976-2018. The results show that by increasing the output gap in different quantities, monetary authorities do not show any reaction to the output gap. But government policymakers pursue an expansionary policy toward the output gap, which is contrary to Taylor's rule, and the results confirm that government policymakers make policy at their will.
Investigating the effects of issuing national digital currency on Iran's monetary policies using the system dynamics method
Mrs Shokooh Mahmoodi, Dr. Seyed Abdulmajid Jalaee, Dr Zeinolabedin Sadeghi, Dr Alireza Shakibai,
Volume 24, Issue 1 (3-2024)
Abstract
Introduction
Currently, 87 countries – representing more than 90% of global GDP – are considering central bank digital currency (CBDC). It is therefore crucial that central banks understand the implications of CBDCs for financial stability and monetary policy. CBDCs should not harm the country's economy. In particular, they should not become a source of financial disruption that could disrupt the transmission of monetary policy. Recently, the details of the Central Bank's digital currency, which is called "Digital Rial" in Iran, have been published by the Central Bank of Iran. This study seeks to examine the changes in the country's monetary policies with the introduction of the Digital Rial by the Central Bank using the system dynamics method. The results of this study show that with the issue of the Digital Rial, the increasing coefficient of money decreases and reduces the money supply, and because the Digital Rial has the same nature as banknotes and coins, it can reduce the power of banks in creating liquidity. As a result, the central bank can use Digital Rial as contractionary monetary policy tool to control inflation in the country.
Methodology:
In order to provide a working solution for the research problem and to understand the importance of the topic, this study tries to use the system dynamics method to present a dynamic model of the relationship between digital currencies and its effect on monetary policies in Iran's economy. System dynamics is a method for modeling systems using accumulation, state and flow variables, which was developed in the 1960s by Professor Jay Forrester at MIT University. This model became very famous in the 70s thanks to the publication of the book "Limits to Growth". This book used the system dynamics model to analyze the absurdity of the idea of unlimited growth. Today, the most comprehensive source for the system dynamics model is the book "Business Dynamics" by Professor John Sterman (2000, MIT University). System dynamics can model the technical and social aspects of complex systems created by the adoption of Bitcoin and other cryptocurrencies. The idea of interaction between factors related to human behavior and the (technical) framework of the system is a perfect way to study the economic dynamics of this new form of money.
Results and Discussion:
The results showed that with the issue of Digital Rial, the increasing coefficient of money decreases and money supply decreases, and because the Digital Rial has the same nature as banknotes and coins, it can reduce the power of banks to create liquidity. On the other hand, the estimates of this research showed that the effect of the ratio of banknotes and coins on the increasing coefficient was not significant, and also the increasing coefficient had less effect on the money supply in pre-2013 period, which can be attributed to the effect of the increasing effect of the money supply. Most of the banks know that in increasing the country's liquidity, the use and expansion of the Digital Rial as a contractionary monetary policy tool will be effective in the current economic conditions. Also, this effect can be more effective with the increase in the use of electronic payments and new banking methods, because in addition to facilitating exchanges and reducing money printing costs, the use of Digital Rials also has the advantages of current electronic payments, with the difference that this part of deposits is not under the control of banks and is kept in electronic wallets, so they will not have the power to create liquidity. Therefore, the effectiveness of this money depends on the choice of the central bank to deposit electronic wallets in commercial banks, as well as the volume of this money issue.
Conclusion:
Considering the effect of Digital Rial on monetary contraction, it is suggested to design effective incentives in the design of Digital Rial, because the expansion of the use of this currency can be effective in controlling inflation. Among these incentives, we can mention fixed fees and lower taxes in transactions compared to other means of payments or increasing the limit of convertible money. Also, the requirement to purchase certain goods only through Digital Rial and to designate special shopping centers that only pay with Digital Rial (similar to China's policies on the use of Chinese Yuan by people) can also be other incentives to use Digital Rial. Also, due to the facilitation and acceleration of exchanges, the expansion of the Digital Rial can be effective in controlling the money supply besides the advantages of electronic payment methods.

A comparative study of the intervention in foreign exchange markets in Iran, Mexico and Türkiye
Mrs. Mahboubeh Abaszadeh, Dr Bahram Sahabi, Dr Hassan Heydari,
Volume 24, Issue 1 (3-2024)
Abstract
The aim of this study is the comparative study of the intervention in foreign exchange markets in Iran, Türkiye and Mexico. Therefore, the goals, methods, and different tactics of the foreign exchange interventions of the central banks are discussed. In addition, in this study, to investigate and compare the behavior of the monetary authorities in the face of increasing exchange rate fluctuations, using the ordinary least squares method, the reaction function of the central bank has been estimated. The results of this research show that the foreign exchange interventions in Iran are different from those of Türkiye and Mexico in terms of the key features investigated. Also, according to the reaction function estimation results, in these countries the increase in the exchange rate leads to more sensitivity of the monetary authorities compared to its decrease.
Introduction
In this research, by examining the features of foreign exchange interventions, the differences and similarities of this foreign exchange policy are evaluated in Iran, Türkiye, and Mexico. Due to features such as the establishment of a floating currency system, the availability of daily intervention data, and the experience of currency crises, two emerging economies, Mexico and Türkiye, have been chosen to match the characteristics of foreign exchange interventions with interventions in Iran.
Methodology
First, we examine the general policies and laws of central banks in relation to foreign exchange policies in Türkiye and Iran. Then we have compared Iran, Mexico, and Türkiye's measures related to foreign exchange interventions. Laws, characteristics, reasons, and laws of foreign exchange interventions in Türkiye, Mexico and Iran are evaluated. The results of this research show how the laws, goals, and implementation methods of different foreign exchange interventions in Türkiye, Mexico, and Iran will reflect different reactions of the monetary authority. In this research, the ordinary least squares method is used to estimate the reaction function of the central banks of Iran, Mexico, and Türkiye. We consider the reaction function of the central bank as follows:
Rt=c+αet~+β(et~)2+vt
In this equation, Rt   is changes in foreign reserves of the central bank and et~  is the nominal exchange rate. Both variables are used with seasonal frequency and also in the form of logarithmic difference.
Findings
The interventions of Mexico and Türkiye are different from the foreign exchange interventions in Iran in terms of the level of transparency, regularity, sterilization, and the tools used. In addition, some goals affecting the interventions were also different in the three countries. This result shows that among the monetary authorities of all three countries, there is a fear of an increase in the exchange rate, and the foreign exchange interventions of the countries are mainly aimed at reducing the exchange rate.
Discussion and Conclusion
The results show that the interventions of Mexico and Türkiye are different from the foreign exchange interventions in Iran in terms of the level of transparency, regularity, sterilization and the tools used. In addition, some goals affecting the interventions were also different in the three countries. Also, the results show that the monetary authorities of all three countries are more sensitive to an increase in the exchange rate than to a decrease in the exchange rate.
 

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