Oil Shock, Monetary Policy and Collateral Effect in Iranian Economy

Document Type : Research Article

Authors

1 Graduated PhD student in Economics, Tarbiat Modares University, Tehran, Iran.

2 Associated Professor, Department of Economical Science, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran.

3 Professor, Department of Economical Science, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran.

4 Professor, Department of Economics, Faculty of Economics and Social Science, Bu-Ali Sina University, Hamedan, Iran.

Abstract

The 2007 financial crisis clearly demonstrate the role of capital assets in the emergence of economic fluctuations and business cycles. Physical assets with a dual role as a factor in production and use as collateral to obtain loans from the banking system in two separate channels affect the real sector of the economy and lead to intensification of product fluctuations and business cycles. Emprical evidence of Iran’s economy indicates that the price of capital assets has been rising and fluctuating over time for various reasons, the most important of which are the role of oil revenues and related shocks. Accordingly, with regard to the collateral effect channel, there is an expectation that by creating a positive oil shock and increasing oil revenues, government spending and, consequently, liquidity, the price of private equity assets, as a acceptable collateral for the banking system, will increase. This issue will lead to an increase in the amount of loans received by the private sector, the volume of investment and output. For this purpose, this study has examined this important issue using data related to the period of 1966- 2017 of the Iranian economy and the model of structural Vector Autoregressive (SVAR). The results of the model confirm the effect of collateral in short periods. Therefore, it is suggested that if the policymaker seeks to stabilize the product in the short term, then it is necessary to adopt an appropriate countercyclical policy on how to pay loans to the private sector in order to control the volume of private sector investment and stabilize the output.

Keywords

References

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Journal of Applied Economics Studies in Iran
Volume 10, Issue 37
April 2021
Pages 27-51

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