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Business Cycles and Monetary Policy: A Further Investigation Using MRStar Models
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Zabihollah Gholami *   , Asadollah Farzinvash , Mohammad Ali Ehsani |
| Ghaemshahr Islamic Azad University , gholamirudi@gmail.com |
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Abstract: (8787 Views) |
| Some economists believe that monetary policy changes only the nominal variables and has no effect on the real variables. In contrast, some economists believe that under some circumstances monetary policy, in addition to the nominal variables, increases the real variables in the short term and, in some cases, even in the long term. Since 1990s numerous theoretical and empirical studies have been conducted to examine the asymmetric effects of monetary policy on real variables. Some New Keynesian economists believe that monetary policy can produce asymmetric effects on gross domestic product. This paper analyzes the asymmetric effects of monetary policy on gross domestic product in Iran during 1959-2010. We use the RESET tests, Terasvirta (1998), Terasvirta and Anderson (1992), Terasvirta (1993), Nonlinear Smooth Transition Autoregressive and logistic transition function models, and use oil income and private sector investment growth rates as the transition variables with one lag. For estimating the 4-state Smooth Transition Autoregressive Model, we use the non-linear least squares and Genetic Algorithm. We find that the effect of monetary policy on gross domestic product is asymmetric in the studied period. The Multiple Regime Smooth Transition Autoregressive Model reveals 4 different business cycle states in Iran. Monetary coefficients are different in these states and the largest coefficient appears in recessions with declining economy, while the smallest coefficient belongs to booms with decreasing growth rates. |
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| Keywords: Monetary policy, Gross domestic product, Asymmetric effects, Multiple Regime Smooth Transition Autoregressive Model |
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Full-Text [PDF 406 kb]
(2162 Downloads)
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Type of Study: Research |
Subject:
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