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A Model of Asset and Liability Management and Monetary Shocks (DSGE Model)

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  • Ahmadian , Azam

    (Monetary and Banking Research Institute (MBRI), Central Bank of the Islamic Republic of Iran (CBI))

  • Shahchera , Mahshid

    (Monetary and Banking Research Institute (MBRI), Central Bank of the Islamic Republic of Iran (CBI))

Abstract

Asset-liability mismatch in balance sheet of banks shows serious challenges in banks because of the traditional methods of recording assets and liabilities at book value in Iran. The Central Bank of the country motivated and advised banks to take concrete steps in minimizing the mismatch in the asset-liability composition. This paper attempts to suggest a micro funded framework that can evaluate the role of asset and liability management in banking sector in business cycles through a DSGE model. In this paper, we use Bayesian method to estimate parameters and use national account and balance sheet data from 1981 to 2013. Results show that tightening monetary policy decreases the cost of ALM .On the other hand, raising required reserve requirement increases the cost of asset and liability management; technology shock leads to decrease of asset and liability management cost, and the costs of ALM affects interest rate. Then, the increase of the cost of ALM leads to increase of interest rate.

Suggested Citation

  • Ahmadian , Azam & Shahchera , Mahshid, 2014. "A Model of Asset and Liability Management and Monetary Shocks (DSGE Model)," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 9(1), pages 57-91, October.
    • Handle: RePEc:mbr:jmonec:v:9:y:2014:i:1:p:57-91
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    References listed on IDEAS

    as
    1. Fenghua Song & Anjan V. Thakor, 2007. "Relationship Banking, Fragility, and the Asset-Liability Matching Problem," The Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 2129-2177, November.
    2. He, Dong & Wang, Honglin, 2012. "Dual-track interest rates and the conduct of monetary policy in China," China Economic Review, Elsevier, vol. 23(4), pages 928-947.
    3. Chen, Qianying & Funke, Michael & Paetz, Michael, 2012. "Market and non-market monetary policy tools in a calibrated DSGE model for mainland China," BOFIT Discussion Papers 16/2012, Bank of Finland Institute for Emerging Economies (BOFIT).
    4. Andrea Gerali & Stefano Neri & Luca Sessa & Federico M. Signoretti, 2010. "Credit and Banking in a DSGE Model of the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 107-141, September.
    5. repec:zbw:bofitp:2011_021 is not listed on IDEAS
    6. Jarrow, Robert A. & van Deventer, Donald R., 1998. "The arbitrage-free valuation and hedging of demand deposits and credit card loans," Journal of Banking & Finance, Elsevier, vol. 22(3), pages 249-272, March.
    7. Katarzyna Zawalinska, 1999. "Asset and Liabilities Management. The Institutional Approach to ALM by Commercial Banks in Poland: a Special Focus on Risk Management," CASE Network Studies and Analyses 0185, CASE-Center for Social and Economic Research.
    8. Marvin Goodfriend & Bennett T. McCallum, 2007. "Banking and interest rates in monetary policy analysis: a quantitative exploration," Proceedings, Federal Reserve Bank of San Francisco.
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    Cited by:

    1. Ahmadyan , Azam & Shahchera , Mahshid, 2018. "Effect of Asset and Liability Management on Liquidity Risk of Iranian Banks," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 13(1), pages 107-123, January.

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    More about this item

    Keywords

    Banks; Asset and liability management; Financial shocks; Monetary policy;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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