The Impact Effect of Different Monetary Policy Rules on Welfare During the periods of Stability and Currency crisis in Iran

Hadian, Ebrahim; Shaygan Mehr, Sima; Rostamzadeh, Parviz; Dehghan Shabani, Zahra

doi:JABM.3.2.15564.351253.2327765798484

The Impact Effect of Different Monetary Policy Rules on Welfare During the periods of Stability and Currency crisis in Iran

Document Type : Excerpt from doctoral thesis

Authors

Ebrahim Hadian ¹

Sima Shaygan Mehr ²

Parviz Rostamzadeh ³

Zahra Dehghan Shabani ³

¹ Economics, Economics, Management and Social Science

² economics, shiraz university

³ shiraz university

JABM.3.2.15564.351253.2327765798484

Abstract

The main goal of this research is to estimate the welfare effects of different monetary policy rules in Iran, considering periods of stability and currency crisis. In this research, a new Keynesian stochastic dynamic multi-sector general equilibrium model was estimated for Iran's economy. After designing the model by introducing 6 different monetary policy rules, the welfare effects of shocks were compared with alternative monetary policy rules for Iran's economy. In this research, an attempt was made to answer the question of whether according to the structure of Iran's economy, which ratio of monetary policy rules can be more efficient in terms of welfare in periods of currency stability and crisis. In the first step, using the currency market pressure index, periods of currency stability and crisis in Iran's economy from 1988 to 2022 were identified. Then, by using the data available on Iran's economy, estimating the models and using the results of other research, the model was calibrated based on periods of currency stability and crisis. Finally, the welfare losses of different monetary rules in various periods were calculated and compared with each other by considering individual shocks and the introduction of 5 shocks simultaneously in the economy. The results of this research showed that in the period of currency crises, the greatest loss of welfare is related to the time when the monetary policymaker puts the rule of nominal production growth as the basis of monetary policy. Also, during this period, the lowest amount of welfare loss occurs in the situation where the monetary policymaker uses the exchange rate stabilization rule to adjust the values of monetary variables. According to the results of the research, during the period of relative stability of the exchange rate in the Iranian economy, the greatest loss of welfare is related to the time when the monetary policymaker puts the rule of nominal production growth as the basis of monetary policy. Also, during this period, the least amount of welfare loss occurs in the conditions when the monetary policymaker uses the generalized rule of Cabrera et al. (2011).

Keywords

welfare effects

monetary rules

Currency crisis

Iranian economy

Subjects

Strategic

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