Journal of Money and Economy

Given the effects of inflation on the decline of household welfare and its impact on production and investment, identifying the factors affecting it in order to adjust inflation and achieve price stability is necessary. Therefore, using the TVP-FAVAR model, which differentiates the fluctuations in factors affecting inflation, we try to identify the effects of different shocks such as liquidity, oil revenues, spot market exchange rates, economic growth, interest rates on bank facilities, budget deficits, inflation uncertainty and unemployment on inflation in Iran. In this study, seasonal data from 1370 to 1394 are used. The results, based on the TVP-FAVAR model, reflect the fact that all variables affecting inflation have a positive effect on this variable. Due to the negative effect of changes in economic growth on inflation rate, especially from 1388 to 1394, the existence of stagflation is confirmed. The shock caused by changes in oil revenues is also an important factor in creating inflation in the economy.

Economic Value Added, or EVA is one of the popular tools that bankers can use to measure the financial performance of their bank. EVA helps management to conduct internal goal-setting. The long-term goal is preferred than short-term implications. It measures the company’s financial performance based on the residual wealth calculated by deducting its cost of capital from its operating profit, adjusted for taxes on a cash basis. It helps to capture the real economic profit of a company. The main objective of this study is to examine the Iranian banks' financial performance based on EVA which is the modern concept introduced to evaluate the performance of banks. Data are collected for the study, which consisted annual reports of the banks from 2006 to 2017 (12 years). Private banks selected in this study were associated with increased non-performing loan to total loan, reduced capital adequacy, reduced profits and increased inefficiencies. All of these factors have led to reduction not only in the economic value of banks but also the negative EVA of selected banks. Banks are encouraged to identify unnecessary activities and reduce the cost of providing services to improve the economic value added of banks.

The main objective of this study was to investigate the effect of monetary policy on changes in the price of financial assets (including foreign exchange, gold and stocks) in Iranian economy. In this regard, this paper answers whether monetary policy could lead to regime changes in asset markets. To answer this question, monthly data during the years 1995 to 2017 and a combination of Markov Switching and Probit methods were used. First, using Markov Switching method, each market was divided into two high-volatility and low-volatility regimes with different average returns, and then, by a Probit model, the effect of monetary policy on the probability of markets being exposed to these regimes was studied. The results of this study show that in all three markets, the Markov Switching model offers better fit than the linear model, which indicates the occurrence of regime changes in the markets. The results of the Probit model show that monetary policy in all three markets is effective on their regime changes, and an expansionary monetary policy will strengthen the position of all three markets in the high-volatility regime with a positive average return. Also, inflation is also one of the factors affecting regime changes in all three markets. The market situation in the past period as well as the situation of other markets are among the factors that lead to regime changes in asset markets. The sanctions imposed on Iran's economy in the currency and gold markets are among the factors that have strengthened the likelihood of changing the regime of these two markets to a volatile environment.

The Central Bank has specific regulations, including asset classification guidelines and how to perform loan’s loss provisioning to oversee banks and credit institutions. The Central Bank seeks to improve the quality of the loan and reduce the amount of nonperforming loans by reducing the revenues of the bank or credit institution through imposing fine on balance of each of the categories of non-performing loans. In this study, the effectiveness of this policy has been investigated using the system dynamics method. The results of the research indicate that the application of the above policy would at least lead to a 17% reduction in the amount of non-performing loans’ accumulation. Research suggests that, if the coverage factor of a pledge during the provision of loan, increases the effectiveness of the policy in the fight against the accumulation of non-performing loans will be eliminated. This phenomenon suggests that the Central Bank needs to focus more on preventive regulatory approaches than on a priori methods in monitoring the credit institutions in providing a loan.

In this paper, we dealt with fiscal dominance, which is a situation in which the fiscal authority sets its expenditure and taxes without regard to any requirement of intertemporal budget balance. Therefore, the monetary authority must adjust its policies to ensure that the government budget is in balance. The existence of oil revenues for the government on the one hand and its lack of access to the financial market, on the other hand, are reasons that we can see financial repression and fiscal dominance in the economy of Iran. This paper presents forward-looking estimates of the relationship between the change in the consolidated primary deficit and the change in the monetary base. This study covers the period 1978-2017, and an autoregressive approach is applied. We conclude that using the budget data only, the existence of fiscal dominance cannot be rejected.

Controlling the business cycle and minimizing the inflation gap are considered as two major goals for monetary policy. Hence, the policymaker will be able to make more decisive decisions with an awareness of the dynamic relationship and causal relationship between these two variables. Accordingly, the present study uses a discrete and continuous wavelet transform to provide a new understanding of the relationship between these two variables in Iran's economy during the years 1990:2 – 2017:1. According to the results of the research, in the short-run (less than one year), the causal relationship has been bidirectional and procyclical. In the medium run (1 to 4 years), the causal relationship is countercyclical and from the inflation gap to the business cycle. In the long run (4 to 8 years), the business cycle is leading, and the two variables are in phase. Besides, the relationship between variables is highly unstable over time and depends on different scales. Therefore, inflation in Iran's economy is not merely a monetary phenomenon, and in the medium-term is affected by changes in the real sector. According to the results of the research, for the output and the inflation to be stable, it is recommended that the policymaker take both goals simultaneously.