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      The Effects of Monetary Policy on Macroeconomic Variables through Credit and Balance Sheet Channels: A Dynamic Stochastic General Equilibrium Approach

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      Sustainability
      MDPI AG

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          Abstract

          Economic policies aimed at managing economic variables in the short and long term have always been of special importance. These policies seek to reduce economic fluctuations in the short term and increase sustainable economic growth in the long term. One of these policies is monetary policy, which is mainly carried out by central banks worldwide. This paper uses the Keynesian Dynamic Stochastic General Equilibrium (DSGE) model to examine the effects of monetary policy on the real variables of the Iranian economy through the credit channel and the balance sheet channel. The presented model analyzed information about macroeconomic variables in Iran for the period from 1990 to 2020. The obtained results show that with the implementation of restrictive monetary policy in the economy, all productive activities of enterprises decreased, and this led to a decrease in household income, which in turn reduced household savings in the form of bank deposits. Because the most important sources of financing for banks are deposits, the ability of banks to offer loans was reduced. On the other hand, a restrictive monetary shock was associated with a decline in the value of corporate securities. As a result, the amount of received loans by firms was reduced by the value of the assets. This reduced the demand of banks for bank loans, which intensified the effects of the initial shock, along with a reduction in the banks’ ability to provide lending services. Further, the results indicate the relative success of the model in simulating Iran’s macro economy.

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              Chapter 21 The financial accelerator in a quantitative business cycle framework

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                Author and article information

                Contributors
                (View ORCID Profile)
                Journal
                SUSTDE
                Sustainability
                Sustainability
                MDPI AG
                2071-1050
                March 2023
                March 01 2023
                : 15
                : 5
                : 4409
                Article
                10.3390/su15054409
                f195e3ec-bd50-43ba-ab5c-68b555558d96
                © 2023

                https://creativecommons.org/licenses/by/4.0/

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