Investigating the Effects of Monetary and Financial Shocks on the Key Macroeconomic Variables, Focusing on the Intermediary Role of Banks Using DSGE Models

Sedigheh Soltani (), Nemat Falihi (), Azadeh Mehrabiyan () and Hossein Amiri ()
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Sedigheh Soltani : Ph.D. in Economics, Islamic Azad University of Centeral Tehran Branch
Nemat Falihi : Faculty of Economics, Islamic Azad University of Centeral Tehran Branch
Azadeh Mehrabiyan : Faculty of Economics, Islamic Azad University of Centeral Tehran Branch
Hossein Amiri : Faculty of Economics, Kharazmi University

Journal of Money and Economy, 2021, vol. 16, issue 4, 477-500

Abstract: This study investigates monetary and financial shocks on macroeconomic variables, focusing on the role of banking intervention. For this purpose, a Keynesian dynamic stochastic general equilibrium (DSGE) model is designed for Iran’s economy that involves financial and banking sectors. The results of the model simulation show that the financial accelerator theory works in the Iranian economy. Also, the intermediary role is confirmed by the impulse response function. In other words, economic policies can impress on macroeconomic indicators more when banks intervene in the economy. Therefore, to control the effects of economic shocks on banks' performance, it has been suggested that monetary policymakers pay attention to the important roles of financial markets in the transfer mechanism and monetary policy intensity. On the other hand, because of mandatory rules of interest rates determination, banks have to establish a commission and nonprofit services instead of sharing income to decrease the effect of economic shocks.

Keywords: Monetary Policy; Financial Shock; Financial Accelerator; DSGE Model (search for similar items in EconPapers)
JEL-codes: C61 E32 E43 E52 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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