Investigating the effect of institutional quality (corruption) and lack of financial dominance (central bank independence) on optimal monetary policy using DSGE and STAR approaches

Document Type : Research Paper

Authors

1 Islamic Azad University,Tehran South Branch,Tehran,Iran

2 Assistant Professor of Economics and Faculty member of Islamic Azad University,Tehran South Branch.Tehran,Iran

3 Assistant Professor of Economics and Faculty member of Islamic Azad University,Tehran South Branch, Tehran,Iran

4 Professor of Economics and Faculty member of Social& Economic Department,Alzahra University,Tehran,Iran

Abstract

Examining monetary policy as one of the channels affecting macroeconomic variables is one of the important issues in the economy. In the present study, using the non-linear model of auto regression with gentle transfer (STAR), the effect of corruption on monetary policy with respect to different levels of independence of the Central Bank of Iran has been investigated. The results, in addition to confirming the non-linear relationship between the independence of the Central Bank of Iran and the growth of money supply, show that increasing the degree of independence of the Central Bank has reduced the growth of money supply. In the second part , optimal behavior of optimal monetary policy is determined using the Stochastic Dynamic General Equilibrium (DSGE) model. The results show that fiscal dominance reduces the coefficient of optimal policy and the greatest stabilizing power of optimal monetary policy occurs in the state of complete independence of monetary policy.

Keywords

Main Subjects

References

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Quarterly Journal of Applied Theories of Economics
Volume 7, Issue 3 - Serial Number 26
December 2020
Pages 241-280

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