Investigating the Optimal Behavior of Policymakers in Determining Bank Interest Rates in the Iranian Economy

Document Type : Research Paper

Authors

1 M.A. student of Economic in Semnan University

2 Associate Professor of Economic department in Semnan University

Abstract

In monetary theories, the interest rate is the link between financial conditions and the rate of physical capital accumulation. In Iran, this rate is determined normatively. The question is - has this method of determining interest rates worked properly or not? The purpose is to investigate the optimality of policymaker behavior in determining bank interest rates by explaining a multi-objective linear optimization model. For this purpose, first the components of the model including target functions (income and money supply) and constraints (private consumption, government spending and inflation) are estimated by ARDL model, based on data from 1358-1397.  Then the optimization model for all years of the period 1396-1387 has been solved using parametric technique. Comparing the values ​​obtained from solving the model with the real values ​​resulting from the policies shows: 1- The bank interest rate set by the policy maker during the period is not optimal and in achieving the maximum policy goals within the capacity 2. In an optimal structure, there is a positive relationship between real bank interest rates greater than zero and income, but this has a limit value. Therefore, the results of McKinnon and Shaw's research on the effect of bank profits greater than zero on economic growth in the optimal structure of the economy in Iran are confirmed. 3. Under optimal conditions, the implementation of contractionary monetary policy to reduce inflation with a low threshold If the money supply falls below this level, it will have the opposite effect

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References

 
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