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Analyzing Real Effects of Uncertainty in Financial Markets with the Emphasizing on Islamic Treasury Bond

Author

Listed:
  • Izadi, Najmeh

    (PhD Student in Economics, University of Tabriz)

  • Motafakker Azad, Mohammad Ali

    (Professor of Economics, University of Tabriz)

  • Ranjpour, Reza

    (Associate Professor of Economics, University of Tabriz)

  • Karimi Takanlou, Zahra

    (Associate Professor of Economics, University of Tabriz)

Abstract

The aim of this study is analyzing fluctuations and uncertainty in the financial market and its effects and outcomes on real variables. To do so, in this study a DSGE model is used in which economic agents are heterogeneous (skilled and un-skilled person) and live for two periods (young and old generations). Moreover, firms are active in a monopolistic competition market with sticky prices. In this structure, financial market uncertainties are analyzed by fluctuations in stock prices, pessimistic of un-skilled agents about risky assets and uncertainty of un-skilled person regarding future of market. The difference of this study from related others is that government debt (from budget deficit) is financed by Islamic treasury bonds (Akhza) and therefore unlike interest rate – based economies, macro variables did not influence by interest rate. Model parameters is estimated using Bayesian approach and quarterly data on 2004 – 2019 period. The results from stochastic simulation shows that by increasing pessimistic degree of un-skilled persons, total consumption of economy and thereby output level will decrease. Moreover, increasing in uncertainty of un-skilled persons about future of stock market leads to increase in total consumption spending, investment spending and inflation rate in economy. Finally, the increase in variance of risky assets prices lead to increase in consumption spending of un-skilled persons but reduction in consumption spending of skilled persons

Suggested Citation

  • Izadi, Najmeh & Motafakker Azad, Mohammad Ali & Ranjpour, Reza & Karimi Takanlou, Zahra, 2022. "Analyzing Real Effects of Uncertainty in Financial Markets with the Emphasizing on Islamic Treasury Bond," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 9(1), pages 91-114, June.
    • Handle: RePEc:ris:qjatoe:0259
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    More about this item

    Keywords

    Financial market uncertainty; DSGE model; finical market fluctuations; heterogeneous agents;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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