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Investigating the Effects of Monetary and Financial Shocks on the Key Macroeconomic Variables, Focusing on the Intermediary Role of Banks Using DSGE Models

Author

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  • Soltani , Sedigheh

    (Ph.D. in Economics, Islamic Azad University of Centeral Tehran Branch)

  • Falihi , Nemat

    (Faculty of Economics, Islamic Azad University of Centeral Tehran Branch)

  • Mehrabiyan , Azadeh

    (Faculty of Economics, Islamic Azad University of Centeral Tehran Branch)

  • Amiri , Hossein

    (Faculty of Economics, Kharazmi University)

Abstract

This study investigates monetary and financial shocks on macroeconomic variables, focusing on the role of banking intervention. For this purpose, a Keynesian dynamic stochastic general equilibrium (DSGE) model is designed for Iran’s economy that involves financial and banking sectors. The results of the model simulation show that the financial accelerator theory works in the Iranian economy. Also, the intermediary role is confirmed by the impulse response function. In other words, economic policies can impress on macroeconomic indicators more when banks intervene in the economy. Therefore, to control the effects of economic shocks on banks' performance, it has been suggested that monetary policymakers pay attention to the important roles of financial markets in the transfer mechanism and monetary policy intensity. On the other hand, because of mandatory rules of interest rates determination, banks have to establish a commission and nonprofit services instead of sharing income to decrease the effect of economic shocks.

Suggested Citation

  • Soltani , Sedigheh & Falihi , Nemat & Mehrabiyan , Azadeh & Amiri , Hossein, 2021. "Investigating the Effects of Monetary and Financial Shocks on the Key Macroeconomic Variables, Focusing on the Intermediary Role of Banks Using DSGE Models," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 16(4), pages 477-500, December.
    • Handle: RePEc:mbr:jmonec:v:16:y:2021:i:4:p:477-500
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    More about this item

    Keywords

    Monetary Policy; Financial Shock; Financial Accelerator; DSGE Model;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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