The Journal of Economic Studies and Policies

The Journal of Economic Studies and Policies

The Role of Assets Prices in Monetary Transmission Mechanism of Iran

Document Type : Original Article

Authors
Asadollah Farzinvash 1
S. Jamaledin M. Zonouzi 2
1 Associate Professor, Faculty of Economics, University of Tehran
2 Assistant Professor, Faculty of Economics and Management, Urmia University
Abstract
The purpose of this paper is to analyze the importance of assets prices in monetary transmission mechanism of Iran. This analysis is based on the Structural VAR class of models, which allow assessing the importance of assets prices by comparing the SVAR models (with asset prices and without asset prices). In fact the difference of these two SVAR models (7 & 10 Variables), shows the importance of assets prices in monetary transmission mechanism of Iran. Assets prices include housing prices, stock prices, exchange rates (1$=? Rials) and gold (coin) prices in period of 1989/Q2-2007/Q1.
According the results, by adding assets prices (housing prices, stock prices, and gold prices) to the SVAR model, the effect of monetary policy shocks (liquidity shock) on output (GNP) fluctuations does not change significantly. Therefore, this work does not find any evidence on importance of the balance sheet channel (of credit view) in monetary transmission mechanism of Iran.
The results show that the expansionary monetary policy (real liquidity) shocks has a significant effect on stock prices, housing prices and exchange rates. The gold prices are more affected by dollar prices fluctuations. Housing prices, gold prices, and exchange rates explain 20 percent of output fluctuations, but stock prices do not explain output fluctuations significantly. Therefore, exchange rate, housing prices, and gold prices have important role in transferring monetary shocks to output fluctuations respectively.
Keywords
Monetary Transmission
Asset Prices
Structural VAR Approach
Stock Prices
Housing Prices
Gold Prices
Exchange Rate

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