روح الله زارع

EXTENDED ABSTRACT INTRODUCTION Investigating the link between monetary policy and stock returns has been very important for monetary policymakers and financial market investors to employ appropriate monetary policy and make the right investment decisions. Moreover, it has been of great interest to economists whether monetary policy has the same sort of effects in bull and bear stock market cycles. If a monetary policy has asymmetric impacts, policy makers should consider stock market cycles while implementing it. The objective of the present study is to investigate the reaction of stock returns to monetary policy and asymmetries over bull and bear cycles in Iran. Moreover, the impact of monetary policy on the switching probabilities between bull and bear regimes is also examined. The theoretical framework for explaining the asymmetries over stock market cycles can be described by the models with financial restrictions. According to these models, financial restrictions are more in bear cycles because of lower net worth in these periods. The lower the net worth, the greater the external finance premium should be. Higher external finance premium create a financial propagation mechanism which amplifies the interest rate effects of monetary policy (Garcia and Schaller, 2002; Chen, 2007). METHODOLOGY To examine asymmetries we employ Markov-switching (MS) models developed by Hamilton (1989). Unlike linear models this approach is nonlinear and can handle asymmetries. Besides, Hamilton algorithm endogenously determines bull and bear stock market cycles based on the data. In this study Hamilton (1989) MS model is modified to allow monetary policy to affect stock returns. Moreover, basic MS model is extended to a time-varying transition probability MS model (TVTP-MS) to allow the probability of switching between regimes depending on monetary policy. FINDINGS According to the findings MS models identify two regimes with different means and variances conventionally labelled as bull and bear. Average expected durations of bull and bear regimes show that both regimes are highly persistent. They persists on average around 10 to 12 quarters. The results of MS models show that monetary policy significantly affect stock returns only in bear cycles. When a monetary policy is measured by real M2, it has a positive impact on stock returns. However, when it is measured by real interest rate it negatively affects stock returns. In other words, an increase in real M2 raises stock returns while increasing real interest rate reduces returns.To measure the impact of monetary policy on the dynamics of switching between regimes we estimate a TVTP-MS model. The results indicate that an expansionary monetary policy raises the probability of remaining in a bull regime. Furthermore, an expansionary monetary policy reduces the probability of switching from a bull regime to a bear one. In addition, an expansionary monetary policy decreases the probability of being trapped in a bear market while it can increase the probability of switching from a bear market to a bull one. CONCLUSION The results of a modified MS model indicate that monetary policy significantly affect stock returns only in bear cycles. More specifically, increase in real M2 raises stock returns while increasing real interest rate reduce returns for both nominal and real returns in bear regimes. These findings are in line with the prediction of the models with financial restrictions. Finally, Empirical results from estimating TVTP-MS models suggest that an expansionary monetary policy raises the probability of remaining in a bull regime while reduces the probability of being trapped in a bear regime.As a policy implication, monetary policy makers should consider stock market cycles in implementing monetary policies. Especially in bear market periods implementing an expansionary monetary policy may lessen the probability of remaining in bear markets and will raise the probability of switching from a bear regime to a bull one. Moreover, stock market investors should consider that the impact of monetary policy on stock returns may depend on the phase of stock market.

This paper examines the impact of globalization on income inequality in a panel of 78 developed and developing countries over 2002–2015. Moreover, the indirect effect of financial development in the link between globalization and income inequality is also analyzed by incorporating the interaction term between globalization and financial development. The empirical evidence based on the first-difference generalized method of moments (difference GMM) estimator suggested by Arellano and Bond (1991) and the system GMM estimator proposed by Arellano and Bover (1995) shows that globalization tends to worsen income inequality. However, the magnitude of the impact of globalization on income inequality is decreased with higher levels of financial development. These findings suggest that a higher level of financial development results in equal income distribution in a globalized world. As a policy implication, policymakers should improve the level of financial development to mitigate the adverse effects of globalization on income distribution.

This paper examines the non-linear relationship between CO2 emissions and economic development using an innovative dynamic panel threshold technique. The sample consists of 35 developed countries over the period 2003-2010. The empirical results indicate that there is a threshold effect in the relationship between economic growth and pollutant emissions as suggested by the environmental Kuznets curve (EKC). In particular, at the early stage of economic development below the estimated threshold value, more growth deteriorates the environmental problems. However, after this threshold value further growth serves as a solution to the environmental problems. Accordingly, promoting economic growth and becoming rich in the long run, is necessary to solve the environmental problems arising from greenhouse gas (GHG) emissions. In the short run and in the early stage of economic growth, focus on investments in environmentally friendly technology and on the use of renewable energy is necessary for mitigating the pollution effects of economic progress.

This paper examines downward price rigidity in Iranian house market and discusses whether this characteristic would result in an asymmetric relationship between house price and monetary policy. To test the downward house price rigidity the threshold GARCH model is employed. The asymmetric adjustment to monetary policy is examined using the asymmetric cointegration and error correction models. The results indicate the presence of the downward house price rigidity in Iranian house market. Moreover, house price are asymmetrically adjusted to monetary policy such that it is increased to reflect a loose monetary policy whereas displayed a large amount of persistency following a tight monetary policy. The results imply that house price tend to overreact in upturns and underreact in downturns reaffirming the downward house price rigidity in Iran. Hence, the government should consider the asymmetric house price adjustment when implementing relevant policies for the house market to avoid the creation of a bubble or the collapse of the house market.

This paper studies bank loans over the business cycles in Iran to determine the role of Iranian banks in stabilizing credit. By estimating the long-run relations using dynamic OLS and fully modified OLS estimators, the findings show that real bank lending is positively related to real GDP in the long-run providing evidences of the pro-cyclicality of bank lending in Iran. Hence, Iranian banking system has not operated far away from the conventional banking system in that they have not the ability to stabilize credit over business cycles. The results of Toda-Yamamoto’s (1995) Granger non-causality test indicate a unidirectional causality running from real GDP to real bank lending. Moreover, the impulse response functions from estimating vector autoregressive models suggest positive and statistically significant response of real bank lending to shocks from real GDP reaffirming the pro-cyclicality of bank lending in Iran. JEL Classification: C22, E32, G21

This paper investigates the asymmetric effects of monetary policy on economic growth over business cycles in Iran. Estimating the models using the Hamilton (1989) Markov-switching model and by employing the data for 1960-2012, the results well identify two regimes characterized as expansion and recession. Moreover, the results show that an expansionary monetary policy has a positive and statistically significant effect on economic growth during recession, in expansionary regimes while the effects are stronger during recessions than expansions as predicted by finance constraints models. By using time-varying transition probability Markov-switching models, the results also show that an expansionary monetary policy raises the probability of switching from a recession to an expansion but reduces the probability of switching from an expansion to a recession. Keywords: Monetary policy, Business cycles, Asymmetry, Markov-switching. JEL Classification: E52, E32, G10