Document Type : Research Article
Authors
1
Department of Economics, University of Sistan and Baluchestan, Zahedan, Iran
2
Associate Professor, Department of Economics, University of Sistan and Baluchestan Assistant Professor ,Department of Economics, University of Sistan and Baluchestan,
3
Professor of Economics, Faculty of Economics, Institute for Humanities and Cultural Studies, Tehran, Iran.
10.22084/aes.2025.30883.3788
Abstract
Monetary policy is one of the most important tools for policymakers to influence macroeconomic variables, including production. However, implementing this policy sometimes has unintended consequences. Therefore, the effective implementation of monetary policy requires understanding the mechanisms of monetary policy transmission. Research following the 2008-2009 financial crisis indicates that the activity of shadow banking in the economy can disrupt the monetary policy transmission process and weaken its effectiveness. Examining Iran's financial system shows that shadow banking activity is rising. Therefore, the central issue of this paper is the impact of shadow banking on the transmission of monetary policy. We examined the effect of shadow banking on the transmission of monetary policy in Iran using a Dynamic Stochastic General Equilibrium(DSGE) model. We explored two scenarios: a financial system lacking shadow banking and one including shadow banking. In each scenario, we investigated the effects of two contractionary monetary policies — raising interest (profit) rates and decreasing the money supply growth— on Gross Domestic Product (GDP), investment, and inflation. The findings indicate that shadow banking undermines the monetary policy's impact on all three variables by weakening the credit channel of monetary policy transmission. Monetary policy is one of the most important tools for policymakers to influence macroeconomic variables, including production. However, implementing this policy sometimes has unintended consequences. Therefore, the effective implementation of monetary policy requires understanding the mechanisms of monetary policy transmission. Research following the 2008-2009 financial crisis indicates that the activity of shadow banking in the economy can disrupt the monetary policy transmission process and weaken its effectiveness. Examining Iran's financial system shows that shadow banking activity is rising. Therefore, the central issue of this paper is the impact of shadow banking on the transmission of monetary policy. We examined the effect of shadow banking on the transmission of monetary policy in Iran using a Dynamic Stochastic General Equilibrium(DSGE) model. We explored two scenarios: a financial system lacking shadow banking and one including shadow banking. In each scenario, we investigated the effects of two contractionary monetary policies — raising interest (profit) rates and decreasing the money supply growth— on Gross Domestic Product (GDP), investment, and inflation. The findings indicate that shadow banking undermines the monetary policy's impact on all three variables by weakening the credit channel of monetary policy transmission.
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