Volume 27, Issue 4 (Winter 2023)
JPBUD 2023, 27(4): 23-60 |
Back to browse issues page
Download citation:
BibTeX | RIS | EndNote | Medlars | ProCite | Reference Manager | RefWorks
Send citation to:
BibTeX | RIS | EndNote | Medlars | ProCite | Reference Manager | RefWorks
Send citation to:
Alizadeh M, Jalali-Naini S A, Einian M. (2023). Estimating Real Money Balance Effect on Private Consumption and Aggregate Demand. JPBUD. 27(4), 23-60. doi:10.52547/jpbud.27.4.23
URL: http://jpbud.ir/article-1-2168-en.html
URL: http://jpbud.ir/article-1-2168-en.html
1- Institute for Management & palnning Studies, Tehran, Iran. , m.alizadeh@imps.ac.ir
2- Institute for Management & palnning Studies, Tehran, Iran
3- Postdoctoral Researcher of Student, Aalto University, Finland.
2- Institute for Management & palnning Studies, Tehran, Iran
3- Postdoctoral Researcher of Student, Aalto University, Finland.
Abstract: (1538 Views)
Real Money Balance indicates the impact of the changes in real money stock on real variables of the economy. This paper estimates the real money balance effects on private consumption and aggregate demand by using a structural estimation approach. The data that we use is Iran’s annual data and runs from 1990 through 2019. The variables are real private consumption expenditures, M2 money stock, CPI, GDP, population, central bank’s one-year interest rate, the arithmetic mean of growth rates of the price of durable commodities, the exchange rate, the price of gold, and the price of one square meter of land. The estimation shows that the parameter that indicates the importance of the real money balance effect on private consumption is significantly different from zero (0.952 and 0.814 from two different normalization estimations). In addition, the amount of real money balance effect on aggregate demand equals 1.691 which is significantly different from zero. These results indicate the importance of real money balance effects on private consumption and aggregate demand in Iran’s economy. This means that real money influences all macroeconomic variables and has an important role in monetary transaction mechanisms. This result indicates the importance of monetary policy and shows why we cannot ignore money’s role in the monetary transaction mechanism. It also illustrates the negative impacts of price rise in real variables on economics by decreasing real money balance.
Type of Study: Research |
Subject:
Macroeconomics
Received: Dec 04 2022 | Accepted: Feb 21 2023 | ePublished: Mar 15 2023
Received: Dec 04 2022 | Accepted: Feb 21 2023 | ePublished: Mar 15 2023
References
1. Ahmad, M., Tashkini, A., & Soori, A. R. (2008). The Estimation of Consumption Function in Iran's Economy. Economics Research, 8(28), 15-39. [In Farsi] [https://joer.atu.ac.ir/article_3230.html?lang=en]
2. Assali, M. (1996). A Macroeconomic Model for a Developing Country: Estimation and Simulation of a Macroeconometric Model for Iran (1959-1993). (Doctor of Philosophy). Durham University,
3. Baum, C. F., Schaffer, M. E., & Stillman, S. (2003). Instrumental Variables and GMM: Estimation and Testing. The Stata Journal, 3(1), 1-31. [DOI:10.1177/1536867X0300300101]
4. Berentsen, A., Menzio, G., & Wright, R. (2011). Inflation and Unemployment in the Long Run. American Economic Review, 101(1), 371-398. [DOI:10.1257/aer.101.1.371]
5. Burriel, P., Fernández-Villaverde, J., & Rubio-Ramírez, J. F. (2010). MEDEA: A DSGE Model for the Spanish Economy. SERIEs, 1(1-2), 175-243. [DOI:10.1007/s13209-009-0011-x]
6. De Scitovszky, T. (1941). Capital Accumulation, Employment and Price Rigidity. The Review of Economic Studies, 8(2), 69-88. [DOI:10.2307/2967464]
7. Dorich, J. (2009). Resurrecting the Role of Real Money Balance Effects. Bank of Canada, Working Paper No. 2009-24
8. Einian, M., & Barakchian, S. M. (2014). Measuring and Dating Business Cycles in the Iranian Economy. Journal of Monetary and Banking Research, 7(20), 161-194. [In Farsi] [https://jmbr.mbri.ac.ir/article-1-77-en.html]
9. Emamgholipour, S., & Agheli, L. (2011). Impact of Wealth on the Consumption of Private Sector in Iran. Economic Modelling, 6(18), 61-81. [In Farsi] [https://eco.firuzkuh.iau.ir/article_555469.html?lang=en]
10. Favara, G., & Giordani, P. (2009). Reconsidering the Role of Money for Output, Prices and Interest Rates. Journal of Monetary Economics, 56(3), 419-430. [DOI:10.1016/j.jmoneco.2009.01.002]
11. Felderer, B., & Homburg, S. (1992). Macroeconomics and New Macroeconomics: Springer Science & Business Media. [DOI:10.1007/978-3-642-58115-1]
12. Fischer, S. (1979). Capital Accumulation on the Transition Path in a Monetary Optimizing Model. Econometrica: Journal of the Econometric Society, 1433-1439. [DOI:10.2307/1914010]
13. Garmabi, A., Jalali-Naiini, A., & Tavakolian, H. (2021). Investigating the Business Cycles of the Iranian Economy by Considering the Effect of Financial Accelerator in the Form of a DSGE Model. Planning and Budgeting, 26(1), 33-67. [In Farsi] [http://jpbud.ir/article-1-2007-fa.html] [DOI:10.52547/jpbud.26.1.33]
14. Haberler, G. (2017). Prosperity and Depression: A Theoretical Analysis of Cyclical Movements: Routledge. [DOI:10.4324/9781315127552]
15. Hall, R. E. (1988). Intertemporal Substitution in Consumption. Journal of Political Economy, 96(2), 339-357. [DOI:10.1086/261539]
16. Hansen, L. P., & Singleton, K. J. (1983). Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns. Journal of Political Economy, 91(2), 249-265. [DOI:10.1086/261141]
17. Ireland, P. N. (2001). Money's Role in the Monetary Business Cycle. National Bureau of Economic Research, Working paper No. 8115. [DOI:10.3386/w8115]
18. Ireland, P. N. (2005). The Liquidity Trap, The Real Balance Effect, and the Friedman Rule. International Economic Review, 46(4), 1271-1301. [DOI:10.1111/j.1468-2354.2005.00367.x]
19. Izadkhasti, H. (2018). Analyzing the Impact of Monetary Policy in a Dynamic General Equilibrium Model: Money in Utility Function Approach. Journal of Economic Modeling Research, 9(31), 71-101. [In Farsi] [http://jemr.khu.ac.ir/article-1-1523-fa.html] [DOI:10.29252/jemr.8.31.71]
20. Komijani, A., Bayat, S., & Sobhanian, S. M. M. (2013). Testing the Long Run Neutrality and Super-Neutrality of Money in Iran. The Journal of Economic Studies and Policies, 9(1), 3-16. [In Farsi] [https://economic.mofidu.ac.ir/article_26150.html?lang=en]
21. Lin, K.-P. (2001). Computational Econometrics: GAUSS Programming for Econometricians and Financial Analysts: ETEXT Textbook Publisher.
22. Lucas Jr, R. E. (1972). Expectations and the Neutrality of Money. Journal of Economic Theory, 4(2), 103-124. [DOI:10.1016/0022-0531(72)90142-1]
23. Lucas Jr, R. E. (2000). Inflation and Welfare. Econometrica, 68(2), 247-274. [DOI:10.1111/1468-0262.00109]
24. Mamipour, S., Jafari, S., & Sasanian Asl, Z. (2018). The Effects of Fiscal and Monetary Policies on Iranian Business Cycle Dynamics with Time Varying Markov Switching Models. Iranian Journal of Economic Research, 23(75), 167-203. [In Farsi] [DOI:10.22054/ijer.2018.9125]
25. McCallum, B. T. (1989). Monetary Economics: Theory and Policy: Prentice Hall.
26. McCallum, B. T. (2000). Theoretical Analysis Regarding a Zero Lower Bound on Nominal Interest Rates. National Bureau of Economic Research, Working Paper 7677. [DOI:10.3386/w7677]
27. McCandless, G. T., & Weber, W. E. (1995). Some Monetary Facts. Federal Reserve Bank of Minneapolis Quarterly Review, 19(3), 2-11. [DOI:10.21034/qr.1931]
28. Mohamadi, T., Mousavi Nik, S. H., Bagheri Pormehr, S., Abdolahi, M., & Ziadlu, H. (2017). A Depiction on Macro-Economic Relations in Iran (A Long Run Structural Macro-Econometric Model). Majlis and Rahbord, 24(90), 35-72. [In Farsi] [https://nashr.majles.ir/article_202.html?lang=en]
29. Moslehi, F. (2006). The Role of Monetary Policy in Iran's Economy (1338-1383). Iranian Journal of Economic Research, 8(27), 133-151. [In Farsi] [https://ijer.atu.ac.ir/article_3701.html?lang=en]
30. Mowlaei, M., & Ali, O. (2018). Measuring the Consumption Smoothing of Iranian Households' Consumption Food Against the Temporary and Permanent Income Shocks. Economic Growth and Development Research, 8(31), 93-106. [In Farsi] [https://egdr.journals.pnu.ac.ir/article_4343.html?lang=en]
31. Murphy, K. M., Shleifer, A., & Vishny, R. W. (1989). Building Blocks of Market Clearing Business Cycle Models. NBER Macroeconomics Annual, 4(1), 247-287. [DOI:10.1086/654111]
32. Parsa, H., Behboodi, M., & Parsa, A. (2013). Analysis of the Effects of Monetary Financial Policy Shocks on Formation of Trade Cycles and Ineome Distribution in Iran. Development Economics and Planning, 2(1), 123-134. [In Farsi]
33. Patinkin, D. (1965). Money, Interest, and Prices: An Integration of Monetary and Value Theory: Harper & Row.
34. Phelps, E. S. et al. (1970). Microeconomic Foundations of Employment and Inflation Theory: W. W. Norton & Co.
35. Pigou, A. C. (1943). The Classical Stationary State. The Economic Journal, 53(212), 343-351. [DOI:10.2307/2226394]
36. Ramsey, F. P. (1928). A Mathematical Theory of Saving. The Economic Journal, 38(152), 543-559. [DOI:10.2307/2224098]
37. Reis, R. (2007). The Analytics of Monetary Non-Neutrality in the Sidrauski Model. Economics Letters, 94(1), 129-135. [DOI:10.1016/j.econlet.2006.08.017]
38. Robinson, T. (2013). Empirical Application| RDP 2013-06: Estimating and Identifying Empirical BVAR-DSGE Models for Small Open Economies. Reserve Bank of Australia Research Discussion Papers.
39. Rotemberg, J. J. (1982). Sticky Prices in the United States. Journal of Political Economy, 90(6), 1187-1211. [DOI:10.1086/261117]
40. Rotemberg, J. J., & Woodford, M. (1997). An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy. NBER Macroeconomics Annual, 12(1), 297-346. [DOI:10.1086/654340]
41. Samuelson, P. A. (1958). An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money. Journal of Political Economy, 66(6), 467-482. [DOI:10.1086/258100]
42. Sidrauski, M. (1967). Rational Choice and Patterns of Growth in a Monetary Economy. The American Economic Review, 57(2), 534-544.
43. Sims, C. A. (1980). Macroeconomics and Reality. Econometrica: Journal of the Econometric Society, 48(1), 1-48. [DOI:10.2307/1912017]
44. Swanson, N. R. (1998). Money and Output Viewed through a Rolling Window. Journal of Monetary Economics, 41(3), 455-474. [DOI:10.1016/S0304-3932(98)00005-1]
45. Walsh, C. E. (2010). Monetary Theory and Policy: MIT Press.
46. Wicksell, K. (1936). Interest and Prices: Ludwig von Mises Institute.
47. Woodford, M. (2003). Interest and Prices: Foundations of a Theory of Monetary Policy: Princeton University Press. [DOI:10.1515/9781400830169]
| Rights and permissions | |
.jpg) |
This work is licensed under a Creative Commons Attribution 4.0 International License. |
