The Role of Financial Development in the Effectiveness of Monetary Policy during Business Cycles: An Application of Markov-Switching Model

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BAJELAN ALI AKBAR; BAYAT ROHOLLAH; ANSARI SAMANI HABIB

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Paper Information

Journal: JOURNAL OF SUSTAINABLE GROWTH AND DEVELOPMENT (THE ECONOMIC RESEARCH) Year:2019 | Volume:18 | Issue:4 Page(s): 187-216

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Title

The Role of Financial Development in the Effectiveness of Monetary Policy during Business Cycles: An Application of Markov-Switching Model

Author(s)

BAJELAN ALI AKBAR | BAYAT ROHOLLAH | ANSARI SAMANI HABIB | Issue Writer Certificate

Keywords

Asymmetric monetary policyQ1

Economic growthQ2

Financial developmentQ2

Markov-switching modelQ1

Abstract

Monetary policy is an effective tool in influencing the macroeconomic variables such as production, employment and the general level of prices. The theoretical literature and empirical evidence show that the effects of monetary policy on macroeconomic variables are asymmetric depending on the level of development and depth of financial markets. The aim of this study is to evaluate the role of Financial development in the effectiveness of monetary policy on real output growth during business cycles. To this end, the effect of monetary policy on the real output growth is examined by applying a Markov-switching model and using the quarterly time-series data of Iran during 2001: 1 to 2013: 4. The results show that the effect of monetary policy on the real output growth during the recessions is significant and positive, while it is insignificant in the boom periods. In other words, the effect of monetary policy on the real output growth is asymmetric. Moreover, the results show that the net effect of monetary policy on the real output growth during business cycles depend on the level of Financial development. During business cycles, if the level of Financial development increases, then the effects of monetary policy on real output growth will decrease.

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APA: Copy

BAJELAN, ALI AKBAR, BAYAT, ROHOLLAH, & ANSARI SAMANI, HABIB. (2019). The Role of Financial Development in the Effectiveness of Monetary Policy during Business Cycles: An Application of Markov-Switching Model. JOURNAL OF SUSTAINABLE GROWTH AND DEVELOPMENT (THE ECONOMIC RESEARCH), 18(4 ), 187-216. SID. https://sid.ir/paper/368769/en

Vancouver: Copy

BAJELAN ALI AKBAR, BAYAT ROHOLLAH, ANSARI SAMANI HABIB. The Role of Financial Development in the Effectiveness of Monetary Policy during Business Cycles: An Application of Markov-Switching Model. JOURNAL OF SUSTAINABLE GROWTH AND DEVELOPMENT (THE ECONOMIC RESEARCH)[Internet]. 2019;18(4 ):187-216. Available from: https://sid.ir/paper/368769/en

IEEE: Copy

ALI AKBAR BAJELAN, ROHOLLAH BAYAT, and HABIB ANSARI SAMANI, “The Role of Financial Development in the Effectiveness of Monetary Policy during Business Cycles: An Application of Markov-Switching Model,” JOURNAL OF SUSTAINABLE GROWTH AND DEVELOPMENT (THE ECONOMIC RESEARCH), vol. 18, no. 4 , pp. 187–216, 2019, [Online]. Available: https://sid.ir/paper/368769/en

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