Assessment of Credit Channel on Output During Recession and Boom Period in Iran's Economy

Empirical studies mainly model monetary transmission mechanism and the role of credit channel as being symmetric across business cycles. Since the degree of asymmetric information and information stickiness in different business periods varies according to the state of the economy of each country, therefore, it would be necessary to evaluate credit channel by using nonlinear methods. This research, using time series information of Iran's economy, to assess the impact of credit channel in Iran's economy by  Markov Switching Vector Auto Regression approach (MS-VAR) and using seasonal data for the years 1990 to 2017. In general, the conclusion can be drawn that in boom period the effect of monetary policy shock leads to increase output growth by about 0.3 percent and then will be decreased till the end of the first year and again will be increased in season 5 by about 0.1 percent and subsequently will be disappeared. The effect of this shock during recession will increase output growth by about 0.1 percent and then decreased to the end of the first year. Again in season 5 output growth will be increased by about 0.05 percent and subsequently it will be disappeared till the end of the period. Also, credit shock leads to increase output growth by about 0.25 percent during boom period and then will be decreased. But, it is ineffective during recession. Results indicate that credit channel is effective during boom period but ineffective during recession. Furthermore, the effect of monetary policy on output through the credit channel during the boom period is more than the recession.