Journal of Money & Economy
Volume:8 Issue: 1, Winter 2013

Determining how monetary policy makers react to changes in key economic variables has been of major interest to monetary economists. Estimates of monetary policy rules (reaction functions) are a widely used method for doing this. Behavior differs under different policy regimes, as in rule-based systems or chronic inflation. In practice, estimates of instrument rules have been used to describe how the central bank alters its policy in response to expected macroeconomic events. In this paper we provide linear and non-linear estimates for various instrument rules for Iran. Linear estimates show that monetary policy in Iran tends to accommodate rather than counteract inflationary pressures. More generally, the estimates indicate that Central Bank of I. R. of Iran does not systematically follow any of the well-known instrument rules or hybrid types. Non-linearity tests were performed and the null hypothesis of non-linearity of the monetary policy reaction function with respect to inflation was rejected. The narrative that can be read from non-linear rule estimates is that, in the «low inflation» states expansionary policies by CBI tend to support economic activity. However, during «high inflation» periods, CBI does not exercise anti-inflation policy but such a stance cannot accommodate output growth. Monetary policy seems to be ineffective if not inappropriate in this state.

Primary objective of this paper is to explain why Korea has been successful in economic growth and industrial transformation while Iran has failed in this area. To explain the different performances of the two countries, we have looked at their initial level of industrialization, nature of political regimes and economic institutions, trade and industrial policies in the two countries. Our conclusions are as follows: First, before 1960s, the level of per-capita GDP and industrial development in Korea was well above Iran, and Korea was better placed for long term growth and industrial development, than Iran. Second, in the period 1960-1977, political regimes, planning organization and baking system were similar in both countries, and despite the fact that Korea adopted export oriented policy and Iran adopted import substitution policy, the economic growth and industrial development in Korea and Iran were quite high, compared to the other developing countries. Third, in the period 1980-2012 Korean government liberalized its trade and FDI regimes, gave more role to markets and modified its industrial policies to facilitate entry of Korean economy to the knowledge based economy. Economy of Iran, however, during a long period from 1979 to 2013, faced a revolution, a prolonged war, international sanctions, institutional disruptions, and contradictory shifts in economic policies. Better performance of Korean economy in this period can be attributed to its superior institutions and policies. Fourth, even if Iran did not face with all of these adversaries, import substitution policy, coupled with no specific industrial policy, could not bring about the industrial transformation and competitive edge for the country.

Understanding the degree of price stickiness and the nature of price setting is necessary for analyzing the effects of monetary policy on economy. To the best of our knowledge, no comprehensive study has examined the degree of price stickiness in Iran yet. For this reason, we examine the basic features of retail price setting behavior using a large data set containing the micro data underlying the construction of the CPI over the period 2004:5 to 2011:9. First we calculate the frequency and size of price changes for 359 categories of consumer goods and services in order to obtain the degree of nominal rigidity of consumer prices. We then investigate what models of price setting, including time dependent and state dependent models, are more consistent with price adjustment pattern in Iran. Based on our results, Consumer prices are highly flexible and there is a high degree of downward rigidity. Also, there is a considerable amount of heterogeneity across sectors both in terms of the frequency and size of price changes. The methods used in this paper for identifying the pattern of pricing supports the existence of both time and state-dependent pricing patterns.

Iran-China relations are deeply rooted in history and have been enhanced recently with bilateral cooperation in the areas of energy, arms sales, trade, political cooperation and cultural ties. The objective of this paper is to analyze the role of international outsourcing in form of trading intermediate products on bilateral trade relations between Iran and China. As an empirical work, we have studied the trade structure of intermediate and final goods between the two countries during the period 1992-2011. Intermediate and final goods traded are classified into three groups: 1) electronic product, 2) automobiles and motorcycles, and 3) apparel and footwear. Observations on such products show that the share of Iran’s intermediate trade with China in these three industries to total trade is about 55% on average. We have concluded that trade in intermediate goods between Iran and China has been more volatile than that of final goods.

The capital structure and regulation of financial intermediary firms are important topics for regulators and academic researchers. In general, theory predicts that firms choose their capital structures by balancing the benefits of debt against its costs. The purpose of this paper is to analyze capital structure as a function of bank's specific variable factors. It examines the relationship between bank's capital ratio and the determinants of capital structure in the Iranian banking industry. This paper uses a dynamic panel data during the period 2000 to 2009. The main results suggest that z-score, return on equity and business cycle are positively correlated with capital ratio. But size of bank, cost ratio and deposits ratio are negatively correlated with capital ratio. The excess capital held by Iranian banks seems to be explained by their profitability, the high stability and soundness of banking system. Z-score, regulation, liquid asset and product of regulation and business cycle are positively correlated with capital ratio, but size, profitability, loan-asset ratio and deposits ratio are negatively correlated with capital ratio.

OIC members have much potential in their economic development. Therefore, their economic integration leads to more increment for partners and deal with global system as a unique organization. Consequently, studying the convergence of OIC members and their encountered challenges has especial importance which can assist the policy makers to develop their commercial relationship and consequently employment enhancing and economic situation improvement in future planning. Therefore, in this research the commercial effects of selected OIC members during 2005-2011 were modeled using gravity method. Results showed that from the basic gravity equation, the economy size of other 6 OIC members is the main determinant in the Iranian bilateral trade relationship. Thereby, 1% increase in the economy size of other 6 OIC members, leads to 0.91% increase in the volume of trade inflows between considered OIC members.