The Impact of Commercial Banks’ Monopoly Power on Effectiveness of Monetary Policy in Iran Economy

Authors

1 Assistant Professor, Golestan University

2 Professor, Bu-Ali Sina University, Hamedan, Faculty of Economics

Abstract

Implementation of monetary policies and adjustments in liquidity are the most important tools of the Central Bank of Iran
used in structural reforms in the banking industry. This policy influences the efficiency of the monetary policy through its impact on bank credit channels. In this study we used dynamic stochastic general equilibrium models as one of the most innovative approaches to monetary policy to assess the effects of monetary policy on the economy. We use quarterly data from April of 1990 to June of 2010. We used Bayesian methods to estimate the parameters of DSGE models and used SGE
simulation to measure the effect of monetary shock on the economy and the structure of the banking industry on the efficiency of the monetary policy. This study concludes that monetary expansion resulted in an increase in inflation.
The results suggest that the increased competition in attracting deposits during monetary shocks, results in an increased consumption as well as deposits for households. However due to lower level of loans for producers, production increases less. On the other hand, increased competition in lending causes results in a higher increase in household consumption, wage labor, interest rates on deposits and loans. However in these conditions, following a monetary shock and in the initial period exclusive banks compared to competitive banks had a lower increase in concessional lending and thereby at the ame time, the positive impacts on employment and production will be lower. In other words, increasing competition in lending in the banking industry results in higher impact of inflation on liquidity growth.

Keywords

References

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