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:: Volume 13, Issue 3 (Summer 2018) ::
J. Mon. Ec. 2018, 13(3): 319-341 Back to browse issues page
The Effect of Monetary Policy on Regime Changes of Financial Assets
Alireza Erfani *1, Saeed Abbasi1
1- Department of Economics, Semnan University
Abstract:   (107 Views)
The main objective of this study was to investigate the effect of monetary policy on changes in the price of financial assets (including foreign exchange, gold and stocks) in Iranian economy. In this regard, this paper answers whether monetary policy could lead to regime changes in asset markets. To answer this question, monthly data during the years 1995 to 2017 and a combination of Markov Switching and Probit methods were used. First, using Markov Switching method, each market was divided into two high-volatility and low-volatility regimes with different average returns, and then, by a Probit model, the effect of monetary policy on the probability of markets being exposed to these regimes was studied. The results of this study show that in all three markets, the Markov Switching model offers better fit than the linear model, which indicates the occurrence of regime changes in the markets. The results of the Probit model show that monetary policy in all three markets is effective on their regime changes, and an expansionary monetary policy will strengthen the position of all three markets in the high-volatility regime with a positive average return. Also, inflation is also one of the factors affecting regime changes in all three markets. The market situation in the past period as well as the situation of other markets are among the factors that lead to regime changes in asset markets. The sanctions imposed on Iran's economy in the currency and gold markets are among the factors that have strengthened the likelihood of changing the regime of these two markets to a volatile environment.
Keywords: Regime Switching in Asset Markets, Markov Switching Model, Monetary Policy
Full-Text [PDF 246 kb]   (18 Downloads)    
Type of Study: Research | Subject: Monetary Economics
Received: 2019/02/25 | Accepted: 2019/06/17
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Erfani A, Abbasi S. The Effect of Monetary Policy on Regime Changes of Financial Assets. J. Mon. Ec.. 2018; 13 (3) :319-341
URL: http://jme.mbri.ac.ir/article-1-389-en.html


Volume 13, Issue 3 (Summer 2018) Back to browse issues page
Journal of Money and Economy Journal of Money And Economy
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