Nonlinear Analysis of the Relationship between Macroeconomic Variables and Monetary Policy with the Menu Cost and Mankiw Model (TVP-VAR)

Ata Jalalpoor (), Seyyed yahya Abtahi (), Jalil Totonchi () and Mohamad Ali Dehghan Tafti ()
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Ata Jalalpoor: PHD student, Islamic Azad University, Yazd Branch
Seyyed yahya Abtahi: Assistant Professor, Islamic Azad University, Yazd Branch
Jalil Totonchi: Assistant Professor, Islamic Azad University, Yazd Branch
Mohamad Ali Dehghan Tafti: Assistant Professor, Islamic Azad University, Yazd Branch

Quarterly Journal of Applied Theories of Economics, 2021, vol. 8, issue 1, 185-214

Abstract: In the present study, a nonlinear analysis of the relationship between macroeconomic variables and monetary policy with the Menu Cost and Mankiw Model in the Iranian economy using the time-regression vector variable coefficient (TVP-VAR) based on the frequency of quarterly data during the period 1368- 1397 was paid. According to the estimation results; it was found that there was a non-linear correlation between macroeconomic variables such as inflation, oil prices and GDP with the monetary policy index. The results show that the impact of oil price shocks on GDP is positive, which can be attributed to the increase in capital goods due to increased oil revenues, which has led to an increase in production in the short run. The effect of oil price shock on inflation has a negative effect on the third period due to the reaction function, which can be attributed to the increase in imports of goods due to increased oil revenues, which disappears from the third period onwards. The effect of monetary shocks on GDP can also be considered positive in a very short period of time, but as the corresponding reaction function shows, it has no effect on production in the long run. The effect of monetary shocks on inflation is also positive, so the assumption of inflation monetary relationship is not rejected.

Keywords: Monetary policy; Production gap; Inflation; Oil price; Self-regression vector with variable coefficients over time (TVP-VAR). (search for similar items in EconPapers)
JEL-codes: E31 E52 E62 E69 F44 (search for similar items in EconPapers)
Date: 2021
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