taylor rule

One of the innovations of the last decade in the field of Islamic monetary discussions is the publication of various Islamic securities.The release of different types of Islamic financing tools as an alternative to conventional bonds is considered one of the most important achievements of Islamic finance,which has found a special place in Islamic and non-Islamic countries,which are designed based on Islamic contracts and are a suitable alternative to bonds. Interest-bearing securities are especially bonds.The aim of the present study is to analyze the impact of Islamic financing tools on monetary policies in Iran with Taylor rule approach in the period of 1984-2020using quantile regression method.The results show that Islamic financing tools have a negative effect on the growth rate of the monetary base.In other words,with the increase in the use of Islamic financing tools,the monetary base growth rate has decreased,which shows that the behavior of monetary policy makers towards Islamic financing tools has been based on rules.

The economies of countries have always been affected by various shocks from the supply and demand side during different periods, and this phenomenon causes deviations in macroeconomic variables. Examining the effect of key macroeconomic variables on these shocks is of special importance, especially in developing countries. The purpose of this study is to impact analysis macroeconomic shocks on monetary and fiscal policy variables in Iran with the Taylor rule approach in the period 1967-2020.

In this study, the impact of macroeconomic shocks on monetary and financial policy variables in Iran has been analyzed with the approach of Taylor's rule: BVAR method.The Bayesian vector auto regressive (BVAR)has been used. In this regard, the regularity or discretion of the central bank's monetary policies and the government's financial policies in Iran have been studied based on Taylor's rule, and the Bayesian vector autoregression (BVAR) model has been used to investigate the instantaneous response and variance analysis. Due to avoiding the use of restrictive dependent forms, vector autoregression approach has been used in this research. One of the expanding and new methods in this field is the use of the Bayesian approach. By combining the initial beliefs of the researcher and the information in the data, the Bayesian method automatically shrinks different models, including vector autoregression models, and as a method to overcome this problem, it has been increasingly popular among researchers. Also, one of the advantages of Bayesian methods is that you can increase the variables of the model without worrying about reducing the degree of freedom. In the form of Bayesian vector autoregression model, this study has investigated Taylor's rule in two models. In the first model, the reaction of monetary policy to macroeconomic shocks and the second model to the reaction of financial policy to macroeconomic shocks in Iran have been analyzed based on Taylor rule. Whit using Theil and RMSE index,it was determined that the determined former Literman-Minnesota function provides the most accurate prediction and The growth rate of the monetary base and government spending have been used as monetary and financial policy tools.The desired model is estimated using Eviews 9.0 software.

The findings of the research based on the instantaneous reaction functions in the first model show that monetary policy makers have implemented an expansionary policy in relation to the impulse of the production gap in the short term, and the effect of this impulse will disappear in the long term. Also, the results of the second model show that financial policy makers have implemented an expansionary policy in relation to the impulse of the production gap in the short and long term. In the following, the central bank has shown a contractionary behavior in relation to the impulses of inflation in the short term, and the effect of the impulse will be lost in the long term, and the government has shown a contractionary behavior in relation to the impulse of the consumer price index in the short term and has implemented an expansionary policy in the long term.Also, relative to one unit standard deviation of the real exchange rate, the monetary and fiscal policies showed expansionary and contractionary behavior in the short term, and the impact of the impulses disappeared in the long term. Further, the results of variance analysis show that in the short and long term, the production gap explains the most changes in the growth rate of the monetary base and government spending.

The results showed that the central bank in the short run has  that the discretionary behavior towards the impulse caused by the output gap is against the Taylor rule and does not react in the long run. The reaction of monetary policymakers to the shock of inflation in the short run is according to the Taylor rule and in the long run inflation shocks will disappear and financial policymakers to the shock of the consumer price index in the short run according to the Taylor rule and in the long run is against the Taylor rule.Also, by creating a momentum in the real exchange rate, the effect of the momentum on the growth rate of the monetary base and government expenditures, negative and positive in the short run and in the long run, respectively, will not be permanent and will disappear.The results of analysis of variance show that in the short and long run the output gap explains the largest changes in the growth rate of the monetary base and government expenditures. The results show that monetary policies in Iran follow financial policies, and this way of financial communication between the government and the central bank is one of the important factors of the ineffectiveness of monetary policies. To evaluate the effect of monetary policy on the goals of controlling inflation and establishing production stability in the economy, the design of the rule Optimal monetary policy is very important and recommended. Especially since Iran's economy, due to various reasons, has conditions where fluctuations and unexpected shocks are not rare on the economy.In this way, it is possible to propose the rule strategy with discretion as a suitable strategy for guiding the monetary and financial policy in Iran.

Achieving the central bank's operational goals is the necessary condition for controlling inflation and materializing sustainable economic growth because the efficient monetary policy depends entirely on it. According to the definition, a variable can be defined as the central bank's operational goal if, firstly, the central bank is willing to use it to achieve the ultimate goals and, secondly, the central bank has the ability to control and conduct it. According to this definition, the policy interest rate in the interbank market can be selected as the operational target. Given this feature and the importance of controlling inflation as the most important goal of monetary policy, many central banks in the world have chosen the inflation targeting as their monetary policy strategy and the policy interest rate as the operational goal. Since 1399, this approach has been implemented by the Central Bank of Iran. In order to review this strategy, first the features of the operational goals, tools and ways to achieve them and then the requirements and preconditions for successful implementation of inflation targeting are mentioned. Finally, the method of determining the policy interest rate and also the implementation of the inflation targeting policy in the Iranian economy will be examined. Recognizing this mechanism, it is expected that while considering the need to establish preconditions for inflation targeting, the process of changing policy interest rate will be such that it will lead to achieving macroeconomic goals.

One of the most important issues in monetary and fiscal policy analysis is their efficiency or effectiveness, which tells policymakers about effectiveness of policies. In general, the effectiveness or effectiveness of monetary and fiscal policies refers to the extent to which they affect equilibrium national output or income.  Therefore, in order to achieve its goals, the policymaker should be able to respond appropriately to the production gap and inflation accordingly, a policy rule covering the goals of the central bank should be used. In this study, in the framework of Taylor rule, the response of monetary and fiscal policies to the output gap has been investigated in the Iranian economy using the Quantile regression method over the period 1976-2018. The results show that by increasing the output gap in different quantities, monetary authorities do not show any reaction to the output gap. But government policymakers pursue an expansionary policy toward the output gap, which is contrary to Taylorchr('39')s rule, and the results confirm that government policymakers make policy at their will.

Determining the profit rate in the Iran's economy as an arbitrary order, although justified in some ways, has caused many problems such as the failure to achieve the grand goals of the policymaker, lack of proper decision making in accordance with business cycles, lack of control and management of economic variables, loss of resources inefficiently. Using a descriptive-analytical method this paper suggests a rule-based system for the determination of profit rate. The rule-based system for the determination of profit rate, in addition to solving the above problems, reduces policy mistakes, increases transparency in decision making as well as reducing political interference in the management of society's monetary system. The Taylor rule is known as one of the most famous and popular monetary rules, although in many studies and policies of the Central Bank, conventional economies have been used with positive results, but its use in the Islamic economy requires jurisprudential-economic studies. The results indicate the possibility of the rule-based system for the determination of profit ratein the banking system of the Islamic Republic of Iran inspired by the Taylor rule. In this regard, the profit rate of exchange contracts can be determined according to the variables of the real sector of the economy and monetary policy objectives in such a way that the rate is not derived from the interest rate. This profit rate on barter contracts can also be used as a guide for determining the rate of return on partnership contracts.

The aim of this study is analyzing the asymmetric effects of monetary policy shocks on the residential market of Iran. In so doing, a Dynamic Stochastic General Equilibrium (DSGE), based on the residential sector of Iran is designed. Moreover, the data used are quarterly in period 1989-2016 and Bayesian method is employed in order to estimate Iran’s economy. The asymmetries of monetary policy shocks are indicated in the following three conditions: The positive and negative effects of monetary policy shocks, the effects of the size of shocks and the effects of monetary policy shocks in depression & inflation. By implementing a positive shock (single- unit) on the model, housing volume (h) has decreased about 45% and the relative rental price (q) has increased approximately about 13%. By increasing the relative rental price, the real income of the housing sector’s agents has augmented. By exerting a negative shock (single- unit) housing volume has been amplified 9%.  By increasing the housing construction, the relative rental price has been augmented about 1%.  But the generated net value in the residential sector showed no change at first. The results indicate by implementing a positive shock, the net value in housing sector rose by around 12%.  One the other hand, The feedback of the models’ variables vary while the size of shocks has changed, or by exerting the same monetary policy once in depression and the other time in inflation

The study of the sources of exchange rate fluctuation is of great importance to the monetary authorities of a country. In the present study, Taylor and Mccallum rules are used to examine exchange rate fluctuations, including the impulses of oil, the impulses of risk premium, the impulses of supply, the impulses of demand, and the impulse of monetary policy in a structural vector auto-regressive framework in the period 1991:1-2017:4. The results of the shock reaction indicate that the exchange rate reaction to the impulses of risk, demand and monetary policy is positive but negative to the impulse of oil. This result is the same according to both Taylor and Mccallum rules, although there are differences in the size of the reaction. The exchange rate reaction to the impulses of supply is negative in the Taylor model and positive in the Mccallum model. The results of variance decomposition also show that, in the Taylor model, the demand and monetary policy shocks, and, in the Mccallum model, the risk premium shock have the largest share in the exchange rate fluctuation. In this study, Taylor and Mccallum models are compared, and it is concluded that the Mccallum rule is more powerful than the Taylor rule in Iran's economy to control the impulses. Indeed, due to the fixed interest rate system, the interest rate mechanism is not effective in the Iranian economy, but the liquidity control policy is a rational policy.

The present study is designed to analyze the effects of monetary policy' shocks on the prices and supply of the housing sector in Iran. In doing so, a DSGE model including the households, housing sector, banks, firms, government and the central bank is used. Monetary policy is modeled according to the Taylor rule and the reaction of interest rate to inflation volatilities and relative house rent. In order to estimate the parameters of the model, Bayesian method was applied to the quarterly data for the time period between 1989 and 2016. After analyzing the estimation results using MCMC, Gelman–Brooks and prior–posterior distribution functions comparison, contractionary monetary policy' shocks has been analyzed in the form of increase in interest rate. The results show that an increase in interest rate will reduce the housing supply and price index by 3% and 2%, respectively. Moreover, housing sector responses to the policies will result in a reduction in consumption, production, inflation, exchange rate and real money balances variables.

At present, conducting monetary policies to achieve the central bank's goals is an important problem among policymakers. However most of central banks have used inflation targeting regime, there is a challenging discussion that it should be replaced with nominal GDP targeting. This paper simulates two alternative monetary policy rules, Taylor rule and money growth rate rule, in new Keynesian stochastic dynamic general equilibrium models for Iran economy (1988–2014). Further, it compares the monetary policy regimes: inflation targeting and nominal GDP targeting for each rule. However, neither of these rules has been applied to Iran monetary policy yet, the parameters of the rules are determined in which the moments of simulations approximately equal to the moments of real economy. Analyzing the moments of simulated parameters and comparing them with the real world’s data demonstrate that the presented models are properly matched with both theoretical principles and Iran economy. The results show that interest rate is proper than the money growth rate for affecting the economic real sector variables. Also, in case of applying Taylor rule for monetary policy, NGDP targeting creates more stability on these variables and Inflation targeting creates more stability on inflation.

In this paper, the aim is to investigate the relationship between Taylor rule for monetary policy and inflation gap persistence in a simple new Keynesian model. This rule is a function of inflation and production gap specifying the weights to these two variables. By estimating these weights via a simultaneous equation system and seasonal data during 1368-1389, the relationship has been investigated between four development programs.According to the results obtained, inflation gap is not persistent in none of the development programs and so there is no significant relationship between inflation gap persistence and the weights of inflation and production gap in monetary policy. That is, the increase and decrease of persistence parameter is under the effect of economy structure of the country. Lack of a significant relationship indicates the imprecision of monetary policy implemented by Central Bank and the failure of the impact of this policy.

In this paper، based on a new Keynesian structure، we have analyzed monetary policy response to exchange rate volatilities in Iran. For this purpose، first، exchange rate derived from equilibrium condition in exchange market and then two different models have been estimated. Assumption on the first model is that central bank responses to exchange rate volatilities and the assumption on the second model is that central bank does not response. To opt proper model، Bayes factor and Likelihood ratio tests have been used. The results show that، first model is a better model in describing central bank’s behaviour. In other words، central bank has responded to exchange rate volatilities its coefficient in the monetary rule is -0. 12. So، when central bank faces with an exchange rate shock، chooses contractionary monetary policy. This result is consistent with the results from model simulations.

In this paper، by using dynamic stochastic general equilibrium، optimal monetary rule derived for central bank of Iran. Monetary transmission mechanism of the model includes four equations، aggregate demand، aggregate supply، oil price and Taylor rule. We have proved that dynamic structure of aggregate demand relation، regarding monetary inflation in Iran، is a function of money growth rate. With this assumption that the goal of central bank is to pursue target inflation rate and output gap، and subject to monetary transmission mechanism، optimal rule of monetary policy obtained for Iran economy that is a function of inflation gap، output gap and oil income growth rate. Estimation results show that money growth rate has no effect on output gap and fully reflexes in inflation expectation. Moreover، one percent increase in oil income causes four percent increase in inflation rate.

Many countries like Iran are looking to solve the serious problems caused by inflation. In this research, the authors are to present a way for controlling the inflation during 5th development plan during 2008-2016 in Iran by using Optimal Control theory and Time Series data of Central Bank during 1998-2007. The interest rate reaction function will be derived and the central bank loss function subject minimized to exchange rate deviation, inflation as well as production behavior. The results indicate that the monetary authorities should increase the interest rate to reduce the liquidity as the cost of financing investments in the production sector. It leads to the control of the inflation directing to the value targeted.

This paper presents the main deficirncies of monetary policy in Iran. Financial repression is used by monetary authorities. Therefore official interest rate could not be the main channel to affect the real sector. Also the monetary condition Index and the other well know monetary rules are not used to evaluate monetary conditions. Moreover monetary policy instruments are traditional ones and recent development of monetary instruments are disregarded. Fiscal policy leads monetary policy because of oil revenuees. In case of decrease in oil revenues, budget deficit is monetized. By the help of a found the monetary policy in Iran does not take into account the economic condition in particular, inflation and GDP gaps.