Analyzing Real Effects of Uncertainty in Financial Markets with the Emphasizing on Islamic Treasury Bond

Najmeh Izadi (), Mohammad Ali Motafakker Azad (), Reza Ranjpour () and Zahra Karimi Takanlou ()
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Najmeh Izadi: PhD Student in Economics, University of Tabriz
Mohammad Ali Motafakker Azad: Professor of Economics, University of Tabriz
Reza Ranjpour: Associate Professor of Economics, University of Tabriz
Zahra Karimi Takanlou: Associate Professor of Economics, University of Tabriz

Quarterly Journal of Applied Theories of Economics, 2022, vol. 9, issue 1, 91-114

Abstract: The aim of this study is analyzing fluctuations and uncertainty in the financial market and its effects and outcomes on real variables. To do so, in this study a DSGE model is used in which economic agents are heterogeneous (skilled and un-skilled person) and live for two periods (young and old generations). Moreover, firms are active in a monopolistic competition market with sticky prices. In this structure, financial market uncertainties are analyzed by fluctuations in stock prices, pessimistic of un-skilled agents about risky assets and uncertainty of un-skilled person regarding future of market. The difference of this study from related others is that government debt (from budget deficit) is financed by Islamic treasury bonds (Akhza) and therefore unlike interest rate – based economies, macro variables did not influence by interest rate. Model parameters is estimated using Bayesian approach and quarterly data on 2004 – 2019 period. The results from stochastic simulation shows that by increasing pessimistic degree of un-skilled persons, total consumption of economy and thereby output level will decrease. Moreover, increasing in uncertainty of un-skilled persons about future of stock market leads to increase in total consumption spending, investment spending and inflation rate in economy. Finally, the increase in variance of risky assets prices lead to increase in consumption spending of un-skilled persons but reduction in consumption spending of skilled persons

Keywords: Financial market uncertainty; DSGE model; finical market fluctuations; heterogeneous agents (search for similar items in EconPapers)
JEL-codes: E31 E32 E44 E47 E51 (search for similar items in EconPapers)
Date: 2022
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