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Evaluating the Effects of Real Interest Rate and Reserve Requirements on the Selected Macro Variables of the Iranian Economy

Author

Listed:
  • Haji Ghasemi, Shahnaz

    () (M.A. Student in Economics, Shahid Bahonar University)

  • Nejati , Mehdi

    () (Assistant Professor of Economics, Shahid Bahonar University)

  • Salehi Asfeji, Nuraallah

    () (Assistant Professor of Economics, Shahid Bahonar University)

Abstract

The association between monetary policy and real economic variables has always been among the economist's major topics of discussion. Depending on the economic situation of Iran, Monetary authorities draw on monetary policy so that they are affected by real economic variables. As a means of monetary policy, interest rate and reserve requirements affect macroeconomic variables significantly. Considering the fact that unemployment, inflation and the lack of sustainable and desirable economic growth have been among the major economic problems of Iran over the past few years, this study uses the simultaneous equation system and adopts generalized method of moments (GMM), in order to analyze the effects of the selected macroeconomic variables of Iran (e.g. inflation, unemployment and economic growth) during the period 1983-2015. The results suggested that the increase in real interest rate is followed by lower GDP, inflation and unemployment, while the increase in reserve requirements results in lower inflation, but higher GDP.

Suggested Citation

  • Haji Ghasemi, Shahnaz & Nejati , Mehdi & Salehi Asfeji, Nuraallah, 2017. "Evaluating the Effects of Real Interest Rate and Reserve Requirements on the Selected Macro Variables of the Iranian Economy," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 4(3), pages 117-142, November.
  • Handle: RePEc:ris:qjatoe:0084
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    More about this item

    Keywords

    Real interest rate; Reserve requirement rate; Macroeconomic variables;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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