Document Type : Article-Based Dissertations

Authors

1 Associate professor, Department of Economics, Faculty of Economics, Management and Accounting, Yazd University, Yazd, Iran

2 Professor of Economics, Department of Economics, Faculty of Economics, Management and Social Sciences, Shiraz University, Shiraz, Iran.

3 PhD Candidate, Department of Economics, Faculty of Economics, Management and Accounting, Yazd University, Yazd, Iran.

Abstract

EXTENDED ABSTRACT
INTRODUCTION
Regardless of different theoretical views regarding the impact of monetary policies on the economy, these policies are currently considered tools to influence variables and the structure of the economy. The main objectives of implementing such economic policies, similar to other policy instruments, are to control adverse economic fluctuations, establish relative stability in price levels, and maintain production within its optimal path. With such goals in mind, it is clear that following the detection of any adverse economic fluctuation, monetary instruments are one of the options available to policymakers to control such fluctuations.
On the other hand, academic literature on monetary policies and the difference in adopting monetary instruments in response to business cycles disregard the distinction among countries (for instance based on their level of development etc.). The accepted advice in the economic literature is that countries should adopt counter-cyclical monetary policies. In other words, in times of economic prosperity, it is recommended that monetary authorities eliminate inflation by increasing interest rates and reducing interest rates in times of economic recession to stimulate production to return to its sustainable path. This recommendation is attributed to the study by Wexel (1907). Despite all the developments in the field of monetary theories in the last century, this recommendation has remained unchallenged and was part of Chicago's plan that emerged from the Great Depression of 1933. Keynesian IS and LM models support counter-cyclical monetary policies. However, Fisher (1977) and Phelps and Taylor (1977) (in the presence of rational expectation), along with Keynesians Woodford (2001) and Giannoni and Woodford (2002), opposed monetary policies as a cycle to stabilizean  active economy and recommend it.
METHODOLOGY
Note that this emphatic policy recommendation does not consider any specific classification among countries. However, there is evidence that countries have adopted monetary instruments differently in response to similar business cycles, depending on their level of development (or other economic indicators). In other words, there are a number of empirical studies indicating that in the presence of business cycles, developed countries have implemented counter-cyclical (or often cycle-independent) monetary policies, while developing ones have adopted this approach and implemented pro-cyclical monetary policies.
In this regard, the present study investigates the cyclical situation of monetary and fiscal policies in Iran. To achieve this goal, a structural vector autoregression (SVAR) model with three variables has been estimated using data derived from 1352 to 1396.
FINDINGS
The results of the study show that correlation coefficient between fiscal and monetary structural movements are very low and approximated to zero. T test show that none of these coefficients had any statistical difference with zero. These findings show that proxies(equipments) for fiscal and monetary policy in Iran are changing independent of business cycles.
 
CONCLUSION
The results from model estimation confirm that monetary and fiscal policies in Iran demonstrate a behavior independent of the cycles.The results also show that these policies, despite the independent nature of the cycle, have the potential for economic stabilization.

Keywords

Main Subjects

Bidabad, B. (2005). The effect of decreasing interest rate of banking facilities on the Iranian economy, Banks & Eonomy, 58: 2-51. http://ensani.ir/file/download/article/20120413183108-5178-152.pdf (In Persian)##Blanchard, O. J., & Quah, D. (1989). The Dynamic Effects of Aggregate Demand and Supply Disturbances. The American Economic Review, 79(4), 655–673. http://www.jstor.org/stable/1827924##César Calderón & Roberto Duncan & Klaus Schmidt-Hebbel., 2010."Institutions and Cyclical Properties of Macroeconomic Policies in the Global Economy, Documentos de Trabajo 372, Instituto de Economia. Pontificia Universidad Católica de Chile. https://ideas.repec.org/p/ioe/doctra/372.html##Crockett A.D. (1994) Rules versus Discretion in Monetary Policy. In: De Beaufort Wijnholds J.O., Eijffinger S.C.W., Hoogduin L.H. (eds) A Framework for Monetary Stability. Financial and Monetary Policy Studies, vol 27. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-0850-8_16 ##Dadgar, Y., & Nazari, R. (2015). Analyzing the Role of Central Bank Monetary Policies in National Economy. Journal of Development Economics and Planning,4(1), https://www.sid.ir/en/journal/viewpaper.aspx?id=567743##Davoudi, P., & Bastanzad, H., (2019). Monetary policy and financial stability in Iran (DSGE approach). Journal of Quantative Economics, 17(2), 10.22055/jqe.2019.28357.2025. (In Presian) ##Du Plessis, S., Smit, B., Sturzenegger (2007). The Cyclicality Of Monetary & Fiscal Policy In South Africa Since 1994. South Africa Journal of Economics, 75(3), 391-411. https://www.jstor.org/stable/23437646##Duncan, R. (2014). Institutional Quality, The Cyclicality Of Monetary Policy & Macroeconomic Volatility. Journal of Macroeconomics, 39, 113-155. https://doi.org/10.1016/j.jmacro.2013.11.004##Fackler, J. S. & McMillan, W. D. (1998). Historical Decomposition of Aggregate Dem & Supply Shocks in a Small Macro Model. Southern Economic Journal, 64(3), 648-664. https://doi.org/10.1002/j.2325-8012.1998.tb00085.x##Farahani, M., Marzban, H., Dehghan, Z. & akbarian, Z. (2018). The theory of Measuring Effects of Interest rate shock on the Macro factors in Iran: A Factor-Augmented Vector Autoregressive, Approach. Journal of Applied Economics Studies in Iran, 7(25), 29-54. doi: 10.22084/aes.2017.10703.2169 (In Persian) ##Fischer, S. (1977). Long-Term Contracts, Rational Expectations, & The Optimal Money Supply Rule. Journal of Political Economy, 85(1), 191-205. https://doi.org/10.1086/260551##Giannoni, M. P., Woodford, M. (2002). Optimal Interest-Rate Rules: II. Applications. NBER Working Paper No. 9420. DOI:10.3386/w9420##Huang, H., Wei, S. (2006). Monetary Policies For Developing Countries: The Role Of Institutional Quality. Journal of International Economics, 70, 239–252. https://doi.org/10.1016/j.jinteco.2005.09.001##Jalali Naini, A & Naderian M. (2016). Monetary & exchange rate policy in an oil exporting economy: the case of Iran. Journal Of Monetary & Banking Researches ,29:327372. https://www.sid.ir/en/journal/ViewPaper.aspx?id=570971(In Persian) ##Jalali Naini, A., (2015). Monetary policy: theoretical bases & evaluation of performance in Iran, Monetary & Banking institute. http://pub.mbri.ac.ir/Pages/BookDetail.aspx?Item_Id=466&Edition_Id=391 (In Persian) ##Kaminsky, G., Reinhart, C., Végh, C. (2004). When It Rains, It Pours: Procyclical Capital Flows & Macroeconomic Policies. In: Gertler, M., Rogoff, K. (Eds.), NBER Macroeconomics Annual. MIT Press, Cambridge, MA. https://www.jstor.org/stable/3585327##Kasaipour, N., Erfani, A. (2018). Optimal Cyclical Behavior of Monetary Policy of Iran: Using a DSGE Model. Iranian Journal of Economic Studies, 7(1), 61-79. DOI:10.22099/IJES.2018.28984.1443##Keshavarz Mohammadian, Z., & Parivar, O., & Hasanzadeh, A. (2014). Impact Of Monetary Policyon Interest Rate In Iran. Journal Of Economics & Business Research, 5(6), 17-28. Https://www.sid.ir/en/journal/viewpaper.aspx?id=513809 (In Persian) ##Khataie, M., & Seyfipour, R. (2006). New Monetary Policy Instruments In Iran: Third Development Plan. Tahghighat-e-eghtesadi, -(73), 233-267. Https://www.sid.ir/en/journal/viewpaper.aspx?id=49573 (In Persian) ##Khoush Akhlagh, R., & Dalali Esfahani, R., & Mousavi Mohseni, R. (2009). The Effects Of Monetary Policies In Iran's Economy: A Financial Computable General Equilibrium Model. Economic Research Review, 9(2 (33)), 47-70. Https://www.sid.ir/en/journal/viewpaper.aspx?id=166628 (In Persian) ##King, M. (2003). No Money, No Inflation – The Role Of Money In The Economy. In P. Mizen(ed.), Central banking, monetary theory & practice: Essays in honour of Charles Goodhart(vol. 1). https://www.jstor.org/stable/4538995##Komijani, A., & Mashhadi Ahmad, F. (2013). Monetary Policy And Its Effect On Economic Growth: With Emphasis On The Banking Interest (Profit) Rate In Iran. Tahghighat-e-eghtesadi, 47(4), 179-200. Https://www.sid.ir/en/journal/viewpaper.aspx?id=316629 (In Persian) ##Komijani, a., & Kavand, H., & Abbasinejad, H. (2010). Lack of Independency in Monetary Policy and the Role of Oil Price in Monetary and Fiscal Policy: the Case of Iran. Journal of Economic Studies and Policies (Economic Policies (Nameh-ye Mofid)), 6 (16)(1 (78)), 3-32. Https://www.sid.ir/en/journal/viewpaper.aspx?id=260711 (In Persian) ##Tavakolian H, Komijani a. Monetary Policy Under Fiscal Dominance and Implicit Inflation Target in Iran: a DSGE Approach. JEMR. 2012; 2 (8) :87-117. Url: Http://jemr.khu.ac.ir/article-1-539-en.html (In Persian) ##Lane, P. (2003). Business Cycles & Macroeconomic Policy In Emerging Market Economies. International Finance, 6 (1), 89–108. https://doi.org/10.1111/1468-2362.00109##Madelat, K. (2001). The Study of State Monetary and Fiscal Policies on the Effect of Oil Revenues in the Economic Analysis. Journal of Sustainable Growth and Development (the Economic Research), 1(2), 68-92. Https://www.sid.ir/en/journal/viewpaper.aspx?id=38059 (In Persian) ##Mahdiloo, A, & Asgharpur, H. (2020). Nonlinear Transmission Mechanism of Monetary Policy from Exchange Rate Channel in Iran: Approach (MS-VAR). Journal of Quantative Economics, 17(1), 121-153. doi: 10.22055/jqe.2019.27873.1990 (In Presian) ##Mojtahed, a. (2009). Evaluation of Monetary Policy and Instruments in Central Bank of Iran. Money and Economy, 1(1), 1-23. Https://www.sid.ir/en/journal/viewpaper.aspx?id=183399 (In Persian) ##Nawaz, M., Mazhar Iqbal, M., & Ali, A. (2018). Institutional Quality And Cyclicality Of Monetary And Fiscal Policies In SAARC Countries. Transylvanian Review Of Administrative Sciences, 14(55), 32-44. Https://doi.org/10.24193/tras.55e.3##Saibu, O., Musbaudeen, A. (2018). Monetary Policy Cyclicality, Industrial Output and Economic Growth Interactions in Nigeria. Iranian Economic Review, 22(2), 457-470. doi: 10.22059/ier.2018.66162##Samadi, a., & Oujimehr, S. (2012). Evaluation of Nature and Cyclicality of Fiscal Policy in I.R. Iran (1974-2007). Journal of Economic Essays, 8(16), 49-75. Https://www.sid.ir/en/journal/viewpaper.aspx?id=248455 (In Persian) ##Shapiro, M. D. & Watson, M. (1988). Sources of Business Cycles Fluctuations. In: S. Fischer (Eds.). NBER Macroeconomics Annual, The MIT Press. http:// https://www.princeton.edu/~mwatson/papers/Shapiro_Watson_NBERMA_1988.pdf##Shirin Bakhsh, S. (2006). The Impacts of Monetary Policy on Investment and Employment. Economic Research Review, 5(4), 263-273. Https://www.sid.ir/en/journal/viewpaper.aspx?id=42836 (In Persian) ##Thornton, J., & Vasilakis, C. (2017). Inflation targeting & the cyclicality of monetary policy. Finance Research Letters, 20, 296-302. https://doi.org/10.1016/j.frl.2016.10.012##Wicksell, K. (1907). The Influence of The Rate Of Interest On Prices. The Economic Journal, 17(66), 213-220. https://doi.org/10.2307/2220665##Woodford, M. (2001). The Taylor Rule & Optimal Monetary Policy. American Economic Review, Papers & Proceedings, 91(2), 232-237. https://www.jstor.org/stable/2677765##Yakhin, Yossi. "Financial Integration and Cyclicality of Monetary Policy in Small Open Economies." (2007) James A. Baker III Institute for Public Policy of Rice University: http://www.bakerinstitute.org/research/financial-integration-and-cyclicality-of-monetary-policy-in-small-open-economies/.##Zare, Z. (2016). The Cyclical Behavior of Fiscal Policy: Its Determinants and Fiscal Rule. Journal of Monetary and Banking Researches, 8(26 ), 543-569. Https://www.sid.ir/en/journal/viewpaper.aspx?id=571644 (In Persian) ##