Different effects of monetary and financial policies on the variable of employment in Iran. (Nonlinear Markov switching model)

The purpose of this study is to investigate the different effects of monetary and financial policies on employment in different periods of recession and economic prosperity. By using the non-linear Markov switching model, which has a great ability to apply structural changes and the possibility of transition and prediction from one regime to another, the research variables were examined during the years 1978 to 2021. Based on the model of optimal model selection, two models (MSAIH) and (MSAI) with the number of four breaks and two optimal regimes among the different states of the Markov switching model were considered as optimal models to investigate the effects of monetary policy and financial policy on the employment variable. The results of the Markov Switching State Model (MSAIH) test showed that the sum of the coefficients of the logarithm of the volume of liquidity in the period of boom and recession has a positive effect on the logarithm of employment. Also, the estimation results of the Markov Switching State Model (MSAI) show that the logarithm of government expenditures and the logarithm of taxes have different effects (positive and negative) on the logarithm of employment in different regimes of recession and prosperity. The results of the transition probability matrix also showed that if we are in a prosperous situation, we will remain in the same situation in the next year with a probability of ninety-five percent and we will move to a period of recession with a probability of five percent.