Studying the Effect of Time Inconsistency on Inflation in Iran Using the FMOC Approach

Document Type : Research Paper

Authors

1 Professor of Economics, University of Tehran

2 Ph.D. student in Economics, University of Tehran

3 Assistant Professor in Economics, University of Ayatollah Borujerdy, Iran

Abstract

In macroeconomics, we can find evidence of time inconsistency in cases like tradeoff between inflation and unemployment. Generally, the difference between ex ante and ex post optimalities is known as ‘time inconsistency’. Subject to a certain unemployment rate, when the expected rate of inflation is low, the inflation rate will, indeed, be low too. This will give an incentive to the central bank and authorities to enforce a policy to decrease the unemployment rate and increase the society’s welfare based on time inconsistency and their own discretionary power. Accordingly, this paper studies the time inconsistency issue and its effects on inflation and seeks to investigate the existence or non-existence of time inconsistency and its rate in the monetary policies of Iran. In this regard, by applying the model suggested by Clark et al. (1999) and Richard Mash (2000) for Iran based on the data related to the period of 1971-2014, we show that, in these years, there has existed time inconsistency in Iran’s economy and that the inflationary bias decreased from 9.68% in the period of 1971-1994 to 8.15% in the period of 1995-2014; hence, time inconsistency in the period  of 1971-1994 had more effect in comparison with the period of 1995-2014.

Keywords

References

  1. الف) منابع و مآخذ فارسی

    1. اسنودن، برایان. و ون، هاوارد (1383). راهنمای نوین اقتصاد کلان. منصورخلیلی عراقی و علی سوری؛ تهران، انتشارات برادران.
    2. بانک مرکزی جمهوری اسلامی ایران (1394). اداره حساب‌های اقتصادی، حساب‌های ملی ایران.
    3. رحمانی، تیمور (1384). اقتصاد کلان، جلد دوم، تهران، انتشارات برادران، چاپ هفتم.
    4. عباسی نژاد، حسین. و کاوند، حسین (1386). "محاسبه معیاری برای بهره‌وری در ایران با استفاده از رهیافت فیلتر کالمن". فصلنامه پژوهش‌های اقتصادی ایران 9(31): 55-75.  س
    5. کریم‌پور، علی (1389). تحلیلی از ناسازگاری زمانی و تورم در ایران‏‎، پایان نامه کارشناسی ارشد، دانشکده اقتصاد، دانشگاه تهران.
    6. نصیری، حسین (1387). "ارزیابی مشکل ناسازگاری زمانی". دو فصلنامه برنامه و بودجه 13(2): 96-152.

     

    ب) منابع و مآخذ لاتین

    1. Aoki, Masaru (2013). "Inflation Band Targeting for a Solution to the Time Inconsistency Problem". Available at SSRN: http:// ssrn.com/ abstract=2056775 or http://dx.doi.org/10.2139/ssrn.2056775.
    2. Barro, R.J. and Gordon, D.B. (1983). "Rules, Discretion and Reputation in a Model of Monetary Policy". Journal of Monetary Economics 12(1): 101 –121.
    3. Blinder, A.S. (1997). "Distinguished Lecture on Economics and Government: What Central Bankers Could Learn from Academics and Vice Versa". Journal of Economic Perspectives 11(2): 3–19.
    4. Chappell, H. W. and McGregor, R. R (2003). "Did Time Inconsistency Contribute to the Great Inflation? Evidence from the FOMC Transcripts". Journal of Money, Credit, and Banking 23: 20-45.
    5. Clark, P. B., C. A. E. Goodhart and H. Huang (1999). "Optimal Monetary Policy Rules in a Rational Expectations Model of the Phillips Curve". Journal of Monetary Economics 43: 497-520.
    6. Dotsey, M. (2008). "Commitment Versus Discretion in Monetary Policy". Federal Reserve Bank of Philadelphia Business Review
    7. Enders, W. (2004(. Applied Econometric Time Series, 2nd ed, Wiley.
    8. Henry W. Chappell, H. W and McGregor, R. R (2003). "Did Time Inconsistency Contribute To the Great Inflation? Evidence from the FOMC Transcripts". Journal Economics & Politics 16(2): 233-251.
    9. Hu¨lya Kanalici Akay & Mehmet Nargelecekenler (2007). "Is There the Time-Inconsistency Problem in Turkey?". Journal of Economic Studies 34(5): 389-400.
    10. King, R. (2006)."Discretionary Policy and Multiple Equilibria". Federal Reserve Bank of Richmond Economic Quarterly 92(1):1–9.
    11. Kydland, F.E. and Prescott, E.C. (1977). "Rules Rather Than Discretion: The Inconsistency of Optimal Plans". Journal of Political Economy 85(3): 473–490.
    12. Richard Mash, Richard (2000). The Time Inconsistency of Monetary Policy with Inflation Persistence, Manor Road Building, Oxford OX1 3UQ, Number 15.
    13. Rogoff, K. (1985). "The Optimal Degree of Commitment to an Intermediate Monetary Target". Quarterly Journal of Economics 100(4): 1169–1189.
The Journal of Economic Policy
Volume 8, Issue 16
April 2017
Pages 135-157

Files

Share

How to cite

Statistics