Analyzing the Interplay of Central Bank Behavior, Liquidity Growth, and Economic Growth Using the Structural Vector Autoregression (SVAR) Approach

Document Type : Research Paper

Authors

1 PhD Student, Department of Economics, Faculty of Humanities, Firoozkooh Branch, Islamic Azad University, Firoozkooh, Iran

2 Associate Professor, Department of Economics, Tehran, Firoozkooh Branch, Islamic Azad University, Firoozkooh, Iran

3 Assistant Professor, Department of Economics, Tehran, Firoozkooh Branch, Islamic Azad University, Firoozkooh, Iran

4 Associate Professor, Department of Economics, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran

Abstract

This study introduces an index to assess central bank behavior by using the interest rate-to-inflation ratio as a key measure. Maintaining this ratio at or above one reflects positive real interest rates and indicates prudent monetary policies. Using time series data for Iran’s economy from 1991 to 2023 and employing the Structural Vector Autoregression (SVAR) model, this study examines the interactions between liquidity growth, economic growth, and central bank behavior. The results revealed that liquidity shocks do not have a significant impact on the interest rate-to-inflation ratio, suggesting that central bank behavior does not directly follow fluctuations in liquidity growth. However, economic growth shocks influence central bank behavior, and a shock to the interest rate-to-inflation ratio reduces liquidity growth with a three-year lag, indicating that monetary policy affects liquidity over time. The results highlight the importance of maintaining a stable interest rate-to-inflation ratio in controlling liquidity, managing inflation, and promoting economic growth

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References

منابع

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Iranian Economic Development Analyses
Volume 10, Issue 2
October 2024

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