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A New Policy Environment to Achieve Monetary Goals

Author

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  • Bastanzad , Hossein

    (Monetary and Banking Research Institute)

Abstract

Monetary environment as the core of financial system has been functionally designed in light of the new set of extensive goals including financial stability, sustainable noninflationary growth, external sustainability, and price stability. A comprehensive monetary policy framework is proposed for Iran which systematically include the new goals, stance variables, instruments, transmission mechanism as well as timely monitoring system. Accordingly, macroeconomic data provides a reliable momentum to evaluate how far the macroeconomic condition is away from the monetary goals in case the data is timely-consistently compiled by policy makers. A wide variety of policy instruments are occasionally applied in the context of the new monetary policy framework by the conventional transmission channels which are technically tracked via monetary condition index, early warning system, leading indicators, and stress tests that give a timely feedback to policy makers to draw contemporaneously a picture of macro prudential stance. Given the prominent share of asset market (housing and capital) in the whole financial and nonfinancial markets in Iran, the monetary policy is empirically required to streamline assets market's flow of funds instead of extra concentration on broad money growth and lending channel. Meanwhile, balance sheet channel is obviously expected to be more effective against monetary policy stance rather than lending channel in order to achieve monetary goals. In this regard, housing and capital markets are both significantly considered more efficient to finance flow of funds and fiscal deficit.

Suggested Citation

  • Bastanzad , Hossein, 2014. "A New Policy Environment to Achieve Monetary Goals," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 9(4), pages 73-108, July.
    • Handle: RePEc:mbr:jmonec:v:9:y:2014:i:4:p:73-108
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    More about this item

    Keywords

    Monetary policy; monetary transmission mechanism; financial markets;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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