Controlling Parallel Exchange Market by Monetary Targeting and Anti-Inflationary Policies
Keywords:
Foreign exchange, Money supply targeting, Monetary policy, Market control, Exchange rate policy
Abstract
In this paper, the triangular relationship between money, price, and foreign exchange are studied. It is concluded that regulating the exchange rate by volume of liquidity in a period of less than a year is not possible, but in annual and biannual analyses, we can regulate the exchange rate through controlling the liquidity. In other words, in the long run, the exchange rate is affected by liquidity and price level, but in the short run, the price level has only temporary effects on the exchange rate. The results of the study show that:
- Liquidity affects the exchange rate in the long run
- Prices affect the liquidity in the long run
- In the long run, liquidity and exchange rate affect prices
Our results show that injection of foreign exchange into the parallel exchange market with different lags has little effects with different directions on the exchange rate. The same result is true for the relationship between liquidity and dollar rate. In other words, in spite of the long run relationship between exchange rate and liquidity, we cannot justify this relationship in the short run. The same is true with the balance of payments position and exchange rate in the short run.
By simulating the relationship between injecting (selling) foreign exchange in the parallel exchange market, liquidity and the cumulative balance of payments all with exchange rate, we can conclude that in the short run, regulating exchange rate by instruments such as selling exchange in the parallel market or controlling the liquidity is not possible, but in the long run, conducting foreign exchange sale policy and controlling the liquidity and the balance of payments position can control the exchange market.
References
A.J. Hagger (1977) Inflation theory & policy, Macmillan, UK.
Ammer, J., R.I. Freeman, (1995). Inflation targeting in the 1990s: the experiences of NewZealand, Canada, and the United Kingdom. Journal of Economic and Business 47: 165-192, North – Holland.
Backus, D., Driffill, J. (1985). Inflation and reputation. American Economic Review 73 (3): 530 – 538
Ball, L. (1992) Why does high inflation raise inflation uncertainty? Journal of Monetary Economics 29:371 – 388.
Belongia M. T. (1988) Are economic forecasts by government agencies biased? or Accurate?, Federal Reserve Bank of St. Louis, Review, November/December, PP-15-23.
Bidabad, Bijan [2014] General monetary equilibrium. Lap Lambert Academic Publishing, OmniScriptum GmbH & Co. KG, ISBN: 978-3-659-54045-5, Spring 2014.
Bidabad B., and N. Kalbasi Anaraki, Inflation Targeting: Case Study of Iran, Paper prepared for the Second Hallescher workshop. http://www.bidabad.com/
Bidabad, Bijan, (2007) Triangular Causality and Controlling Parallel Exchange Market. Monetary and Banking Research Academy, Central Bank of Iran, Tehran, Iran. http://www.bidabad.com/
Broadus, J. A., JR, M. Giideriend (1996) Foreign exchange operations and the Federal Reserve, Annual report 1995.
Canzoneri M. (1985) Monetary policy games and the role of private information. American Economic Review 75 (5): 1056-1070.
Caprio, P. Honohan (1991), Monetary policy instruments for developing countries, world bank, Washington, D.C.
McNees S.K (1995) An assessment of the “ official” economic forecasts, New England economic review, Federal Reserve Bank of Boston.
R- MacDonald (1988), floating Exchange rates, theories and evidence, Unwin Hyman Ltd.
Rodrik, D. (1989) Promises: Credible policy reform via signaling. Economic Journal 99: 756-772.
Taylor, J. (1982) Establishing Credibility: A rational expectation viewpoint. American Economic Review 72 (2): 81-85.
Bernanke, B.S., Laubach, T., Mishkin, F.S. and Posen A.S. (1999), “Inflation Targeting” Princeton: Princeton University Press.
Kumhof, M. (2000), “Inflation Targeting Under Imperfect Credibility” Stanford University.
Kumhof, M. Li, S. and Yan, I. (2001), “Balance of payments Crises under Inflation Targeting” Mimeo, Stanford University.
Masson, P.R., Savastano, M.A. and Sharma, S. (1997), “The Scope for Inflation Targeting in Developing Countries”, IMF Working Paper WP/97/130.
Mishkin, F.S. (2000), “Inflation Targeting in Emerging Countries”, American Economic Review, vol. 90, no.2 May 2000, pp 105 - 109
Mishkin, F.S. and Schmidt-Hebbel, K. (2001) “One Decade of Inflation Targeting in the World: What Do We Know and What Do We Need to Know?”, NBER 8397.
Ryan, C. and Thompson, C. (2000), “Inflation Targeting and Exchange Rate Fluctuations in Australia” Reserve Bank of Australia, Research Discussion Paper 2000-06.
Svensson, L.E.O. (1997) “Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets” European Economic Review, 41 p. 1111 - 1146.
Svensson, L.E.O. (2000) “Open-Economy Inflation Targeting” Journal of International Economics 50(1) p. 155 - 183.
Jonas, J.; F.S.Mishkin (2003)"Inflation targeting in transition countries: experience and prospects. National Bureau of Economic Research, Working Paper 9667. April. Http://www.nber.org/papers/w9667/.
Gecchetti S.G., J. Kim (2003), Inflation targeting, price-path targeting, and output variability. National Bureau of Economic Research, Working Paper 9672. May. Http://www.nber.org/papers/w9672/.
Mishkin, F.S. (2000), Inflation targeting in emerging markets countries. National Bureau of Economic Research, Working Paper 7618. Http://www.nber.org/papers/w7618/
B. Laurence, N. Sheridan "Does Inflation Targeting Matter?" NBER, working paper 9577, March 2003.
Bernanke, B.S. and F.S. Mishkin," Inflation Targeting: A New Framework for Monetary Policy, Journal of Economic Perspectives, 1997.
Bernanke Ben S., Laubach, Thomas, Mishkin Fredric S. and Posen Adam S. " Inflation Targeting: Lessons from the International Experience. Princeton, NJ: Princeton University Press.
Cechetti S, and M. Ehrmann "Does Inflation Targeting Increase Output Volatility? An International Comparison of Policymakers preferences and Outcomes", Central Bank of Chile, working paper 69, April 2000. http://www.bcentral.c1/Estudios/DTBC/69/dtbc69.pdf
Cecchetti Stephen G. and Junhan Kim, "Inflation Targeting, Price-Path Targeting, and Output Variability", NBER working paper 9672, May 2003.
Christiano, Lawrence J., Martin Eichenbaum; Charles L. Evans, "Identification of the Effects of Monetary Policy Shocks," in M.I. Blejer et al. eds, Financial Factors in Economic Stabilization and Growth. New York, Cambridge University Press, 1996.
Ditmar R., Gavin, W.T, and F.E. kydland "What Do New-Keynesian Phillips Curves Imply for Price Level targeting, Review, Federal Reserve Bank of St. Louis 2000.
Estrella Arturo and Frederic S. Mishkin "Is There a Role for Monetary Aggregates in the Conduct of Monetary Policy", Journal of Monetary Economics, October 1997.
Feldstein, M. "The Costs and benefits of Price Stability", NBER working paper 6200, Sept. 1997.
Friedman, Benjamin M., "The Use and Meaning of Words in Central Banking: Inflation Targeting, Credibility, and Transparency, NBER working paper 8972, June 2002.
Jonas. Jiri, and Frederic S. Mishkin "Inflation Targeting in Transition Countries: Experience and Prospects, NBER working paper 9667, April 2003.
King, M., "Challenges for Monetary Policy: New and Old", in New Challenges for Monetary Policy, Federal Reserve Bank of Kansas City, Kansas City, Missouri, 1999.
Masson Paul, R., Savastano, Miguel A.; Sharma Sunil. "The Scope for Inflation Targeting in Developing Countries, IMF working paper 130, October 1997.
McCallum Bennett T., "Inflation Targeting in Canada, New Zealand, Sweden, The United Kingdom, And In General", NBER working paper 5579, May 1996.
McCallum Bennett T., "Specification of Policy Rules and performance Measure in Multicountry Simulation Studies, Journal of International Money and Finance, June 1994.
Mishkin Frederic S., "Inflation Targeting in Emerging Market Countries", American Econ. Rev., May 2000.
Mishkin Frederic S., "Issues in Inflation Targeting "in Price Stability and the Long-run Target for Monetary Policy, Bank of Canada, Ottawa, Canada, 2001.
Mishkin Frederic S. "International Experiences with Different Monetary Regimes", Journal of Monetary Economics, 43, 1999.
Mishkin Frederic S., "International Experiences With different Monetary Policy Regimes," Journal of Monetary Economics, Vol 43, 1999.
Mishkin Frederic S, and Posen, Adam S. "Inflation Targeting: Lessons from Four Countries", Federal Reserve Bank of New York, Economic Policy Review, August 1997.
Mishkin Frederic S., and Klaus Schmidt-Hebbel "One Decade of Inflation Targeting in the World: What Do We Know and What Do We Need to Know", NBER working paper 8397, July 2001.
Svensson Lars, E.O., The Swedish Experience of an Inflation Target, NBER working paper 4985, Jan 1995.
بيدآباد، بيژن (1373) ارتباط اجزاء منابع و مصارف بانكها با بخشهاي پولي، ارزي و مالي و مغايرتهاي موجود در گزارش اقتصادي و ترازنامه بانك مركزي، وزارت امور اقتصادي و دارايي، معاونت امور اقتصادي.
بيدآباد، بيژن (1374)، برخي ناهمخوانيها در حسابهاي پولي، ارزي و مالي گزارش اقتصادي و ترازنامه بانك مركزي، معاونت اقتصادي و تكنولوژي، مركز تحقيقات استراتژيك، نهاد رياست جمهوري.
بيژن بيدآباد (1377) بررسي اجمالي اثرات سياست فروش ارز در بازار غيررسمي اسعار خارجي، مجله تازههاي اقتصاد شمارة 84 – صفحات 6- 4. پژوهشكدة پولي و بانكي، بانك مركزي ايران.
بيژن بيدآباد (1374) امنيت اقتصادي و مروري بر موانع سرمايهگذاري در ايران، مركز پژوهشهاي مجلس شوراي اسلامي.
بيژن بيدآباد (1374) آيا ابزارهاي پولي بانك مركزي در كنترل حجم نقدينگي كافي ميباشند؟ گزارش 4 از مجموعه مسائل اقتصاد كلان اقتصاد ايران، مركز تحقيقات استراتژيك نهاد رياست جمهوري.
بيژن بيدآباد (1374) آيا تورم در ايران به غير از افزايش حجم نقدينگي علت اساسي ديگري نيز دارد، گزارش شماره 3 از مجموعه مسائل اقتصاد كلان، مركز تحقيقات استراتژيك نهاد رياست جمهوري.
بيژن بيدآباد (1374) آيا كاهش تورم در اثر كاهش رشد نقدينگي سبب كاهش رشد اقتصادي در ايران ميشود؟ گزارش شمارة 2 از مجموعة مسائل اقتصاد كلان ايران، مركز تحقيقات استراتژيك نهاد رياست جمهوري.
بيژن بيدآباد (1375) الگوي اقتصاد سنجي كلان ايران، مؤسسه تحقيقات پولي و بانكي، بانك مركزي ايران. ويرايش 4.
بيژن بيدآباد (1375) آيا بدون امنيت اقتصادي ميتوان انتظار افزايش سرمايهگذاري را داشت؟ گزارش شمارة 8 از مجموعه مسائل اقتصاد كلان ايران، مركز تحقيقات استراتژيك نهاد رياست جمهوري.
كميجاني، اكبر و بيژن بيدآباد (1369) تبيين پولي تورم در اقتصاد ايران و امكانپذيري حصول اهداف برنامه پنجساله اول توسعه اقتصادي، اجتماعي و فرهنگي جمهوري اسلامي ايران، وزارت امور اقتصادي و دارايي، معاونت امور اقتصادي.
كميجاني، اكبر و بيژن بيدآباد (1370) سياستهاي پولي مناسب جهت تثبيت فعاليتهاي اقتصادي در ايران، طرح تحقيقاتي مرحله اول وزارت امور اقتصادي و دارايي، معاونت امور اقتصادي.
كميجاني، اكبر و بيژن بيدآباد (1371) سياستهاي پولي و ارزي مناسب جهت تثبيت فعاليتهاي اقتصادي در ايران، طرح تحقيقاتي مرحله دوم، وزارت امور اقتصادي و دارايي، معاونت امور اقتصادي.
مجرد، محمد جعفر و بيژن بيدآباد (1376) سياست هدفگذاري براي كنترل تورم در ايران، ششمين كنفرانس سياستهاي پولي و ارزي، مؤسسه تحقيقات پولي و بانكي، بانك مركزي جمهوري اسلامي ايران.
Ammer, J., R.I. Freeman, (1995). Inflation targeting in the 1990s: the experiences of NewZealand, Canada, and the United Kingdom. Journal of Economic and Business 47: 165-192, North – Holland.
Backus, D., Driffill, J. (1985). Inflation and reputation. American Economic Review 73 (3): 530 – 538
Ball, L. (1992) Why does high inflation raise inflation uncertainty? Journal of Monetary Economics 29:371 – 388.
Belongia M. T. (1988) Are economic forecasts by government agencies biased? or Accurate?, Federal Reserve Bank of St. Louis, Review, November/December, PP-15-23.
Bidabad, Bijan [2014] General monetary equilibrium. Lap Lambert Academic Publishing, OmniScriptum GmbH & Co. KG, ISBN: 978-3-659-54045-5, Spring 2014.
Bidabad B., and N. Kalbasi Anaraki, Inflation Targeting: Case Study of Iran, Paper prepared for the Second Hallescher workshop. http://www.bidabad.com/
Bidabad, Bijan, (2007) Triangular Causality and Controlling Parallel Exchange Market. Monetary and Banking Research Academy, Central Bank of Iran, Tehran, Iran. http://www.bidabad.com/
Broadus, J. A., JR, M. Giideriend (1996) Foreign exchange operations and the Federal Reserve, Annual report 1995.
Canzoneri M. (1985) Monetary policy games and the role of private information. American Economic Review 75 (5): 1056-1070.
Caprio, P. Honohan (1991), Monetary policy instruments for developing countries, world bank, Washington, D.C.
McNees S.K (1995) An assessment of the “ official” economic forecasts, New England economic review, Federal Reserve Bank of Boston.
R- MacDonald (1988), floating Exchange rates, theories and evidence, Unwin Hyman Ltd.
Rodrik, D. (1989) Promises: Credible policy reform via signaling. Economic Journal 99: 756-772.
Taylor, J. (1982) Establishing Credibility: A rational expectation viewpoint. American Economic Review 72 (2): 81-85.
Bernanke, B.S., Laubach, T., Mishkin, F.S. and Posen A.S. (1999), “Inflation Targeting” Princeton: Princeton University Press.
Kumhof, M. (2000), “Inflation Targeting Under Imperfect Credibility” Stanford University.
Kumhof, M. Li, S. and Yan, I. (2001), “Balance of payments Crises under Inflation Targeting” Mimeo, Stanford University.
Masson, P.R., Savastano, M.A. and Sharma, S. (1997), “The Scope for Inflation Targeting in Developing Countries”, IMF Working Paper WP/97/130.
Mishkin, F.S. (2000), “Inflation Targeting in Emerging Countries”, American Economic Review, vol. 90, no.2 May 2000, pp 105 - 109
Mishkin, F.S. and Schmidt-Hebbel, K. (2001) “One Decade of Inflation Targeting in the World: What Do We Know and What Do We Need to Know?”, NBER 8397.
Ryan, C. and Thompson, C. (2000), “Inflation Targeting and Exchange Rate Fluctuations in Australia” Reserve Bank of Australia, Research Discussion Paper 2000-06.
Svensson, L.E.O. (1997) “Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets” European Economic Review, 41 p. 1111 - 1146.
Svensson, L.E.O. (2000) “Open-Economy Inflation Targeting” Journal of International Economics 50(1) p. 155 - 183.
Jonas, J.; F.S.Mishkin (2003)"Inflation targeting in transition countries: experience and prospects. National Bureau of Economic Research, Working Paper 9667. April. Http://www.nber.org/papers/w9667/.
Gecchetti S.G., J. Kim (2003), Inflation targeting, price-path targeting, and output variability. National Bureau of Economic Research, Working Paper 9672. May. Http://www.nber.org/papers/w9672/.
Mishkin, F.S. (2000), Inflation targeting in emerging markets countries. National Bureau of Economic Research, Working Paper 7618. Http://www.nber.org/papers/w7618/
B. Laurence, N. Sheridan "Does Inflation Targeting Matter?" NBER, working paper 9577, March 2003.
Bernanke, B.S. and F.S. Mishkin," Inflation Targeting: A New Framework for Monetary Policy, Journal of Economic Perspectives, 1997.
Bernanke Ben S., Laubach, Thomas, Mishkin Fredric S. and Posen Adam S. " Inflation Targeting: Lessons from the International Experience. Princeton, NJ: Princeton University Press.
Cechetti S, and M. Ehrmann "Does Inflation Targeting Increase Output Volatility? An International Comparison of Policymakers preferences and Outcomes", Central Bank of Chile, working paper 69, April 2000. http://www.bcentral.c1/Estudios/DTBC/69/dtbc69.pdf
Cecchetti Stephen G. and Junhan Kim, "Inflation Targeting, Price-Path Targeting, and Output Variability", NBER working paper 9672, May 2003.
Christiano, Lawrence J., Martin Eichenbaum; Charles L. Evans, "Identification of the Effects of Monetary Policy Shocks," in M.I. Blejer et al. eds, Financial Factors in Economic Stabilization and Growth. New York, Cambridge University Press, 1996.
Ditmar R., Gavin, W.T, and F.E. kydland "What Do New-Keynesian Phillips Curves Imply for Price Level targeting, Review, Federal Reserve Bank of St. Louis 2000.
Estrella Arturo and Frederic S. Mishkin "Is There a Role for Monetary Aggregates in the Conduct of Monetary Policy", Journal of Monetary Economics, October 1997.
Feldstein, M. "The Costs and benefits of Price Stability", NBER working paper 6200, Sept. 1997.
Friedman, Benjamin M., "The Use and Meaning of Words in Central Banking: Inflation Targeting, Credibility, and Transparency, NBER working paper 8972, June 2002.
Jonas. Jiri, and Frederic S. Mishkin "Inflation Targeting in Transition Countries: Experience and Prospects, NBER working paper 9667, April 2003.
King, M., "Challenges for Monetary Policy: New and Old", in New Challenges for Monetary Policy, Federal Reserve Bank of Kansas City, Kansas City, Missouri, 1999.
Masson Paul, R., Savastano, Miguel A.; Sharma Sunil. "The Scope for Inflation Targeting in Developing Countries, IMF working paper 130, October 1997.
McCallum Bennett T., "Inflation Targeting in Canada, New Zealand, Sweden, The United Kingdom, And In General", NBER working paper 5579, May 1996.
McCallum Bennett T., "Specification of Policy Rules and performance Measure in Multicountry Simulation Studies, Journal of International Money and Finance, June 1994.
Mishkin Frederic S., "Inflation Targeting in Emerging Market Countries", American Econ. Rev., May 2000.
Mishkin Frederic S., "Issues in Inflation Targeting "in Price Stability and the Long-run Target for Monetary Policy, Bank of Canada, Ottawa, Canada, 2001.
Mishkin Frederic S. "International Experiences with Different Monetary Regimes", Journal of Monetary Economics, 43, 1999.
Mishkin Frederic S., "International Experiences With different Monetary Policy Regimes," Journal of Monetary Economics, Vol 43, 1999.
Mishkin Frederic S, and Posen, Adam S. "Inflation Targeting: Lessons from Four Countries", Federal Reserve Bank of New York, Economic Policy Review, August 1997.
Mishkin Frederic S., and Klaus Schmidt-Hebbel "One Decade of Inflation Targeting in the World: What Do We Know and What Do We Need to Know", NBER working paper 8397, July 2001.
Svensson Lars, E.O., The Swedish Experience of an Inflation Target, NBER working paper 4985, Jan 1995.
بيدآباد، بيژن (1373) ارتباط اجزاء منابع و مصارف بانكها با بخشهاي پولي، ارزي و مالي و مغايرتهاي موجود در گزارش اقتصادي و ترازنامه بانك مركزي، وزارت امور اقتصادي و دارايي، معاونت امور اقتصادي.
بيدآباد، بيژن (1374)، برخي ناهمخوانيها در حسابهاي پولي، ارزي و مالي گزارش اقتصادي و ترازنامه بانك مركزي، معاونت اقتصادي و تكنولوژي، مركز تحقيقات استراتژيك، نهاد رياست جمهوري.
بيژن بيدآباد (1377) بررسي اجمالي اثرات سياست فروش ارز در بازار غيررسمي اسعار خارجي، مجله تازههاي اقتصاد شمارة 84 – صفحات 6- 4. پژوهشكدة پولي و بانكي، بانك مركزي ايران.
بيژن بيدآباد (1374) امنيت اقتصادي و مروري بر موانع سرمايهگذاري در ايران، مركز پژوهشهاي مجلس شوراي اسلامي.
بيژن بيدآباد (1374) آيا ابزارهاي پولي بانك مركزي در كنترل حجم نقدينگي كافي ميباشند؟ گزارش 4 از مجموعه مسائل اقتصاد كلان اقتصاد ايران، مركز تحقيقات استراتژيك نهاد رياست جمهوري.
بيژن بيدآباد (1374) آيا تورم در ايران به غير از افزايش حجم نقدينگي علت اساسي ديگري نيز دارد، گزارش شماره 3 از مجموعه مسائل اقتصاد كلان، مركز تحقيقات استراتژيك نهاد رياست جمهوري.
بيژن بيدآباد (1374) آيا كاهش تورم در اثر كاهش رشد نقدينگي سبب كاهش رشد اقتصادي در ايران ميشود؟ گزارش شمارة 2 از مجموعة مسائل اقتصاد كلان ايران، مركز تحقيقات استراتژيك نهاد رياست جمهوري.
بيژن بيدآباد (1375) الگوي اقتصاد سنجي كلان ايران، مؤسسه تحقيقات پولي و بانكي، بانك مركزي ايران. ويرايش 4.
بيژن بيدآباد (1375) آيا بدون امنيت اقتصادي ميتوان انتظار افزايش سرمايهگذاري را داشت؟ گزارش شمارة 8 از مجموعه مسائل اقتصاد كلان ايران، مركز تحقيقات استراتژيك نهاد رياست جمهوري.
كميجاني، اكبر و بيژن بيدآباد (1369) تبيين پولي تورم در اقتصاد ايران و امكانپذيري حصول اهداف برنامه پنجساله اول توسعه اقتصادي، اجتماعي و فرهنگي جمهوري اسلامي ايران، وزارت امور اقتصادي و دارايي، معاونت امور اقتصادي.
كميجاني، اكبر و بيژن بيدآباد (1370) سياستهاي پولي مناسب جهت تثبيت فعاليتهاي اقتصادي در ايران، طرح تحقيقاتي مرحله اول وزارت امور اقتصادي و دارايي، معاونت امور اقتصادي.
كميجاني، اكبر و بيژن بيدآباد (1371) سياستهاي پولي و ارزي مناسب جهت تثبيت فعاليتهاي اقتصادي در ايران، طرح تحقيقاتي مرحله دوم، وزارت امور اقتصادي و دارايي، معاونت امور اقتصادي.
مجرد، محمد جعفر و بيژن بيدآباد (1376) سياست هدفگذاري براي كنترل تورم در ايران، ششمين كنفرانس سياستهاي پولي و ارزي، مؤسسه تحقيقات پولي و بانكي، بانك مركزي جمهوري اسلامي ايران.
Published
2019-06-06
How to Cite
Bidabad, B. (2019). Controlling Parallel Exchange Market by Monetary Targeting and Anti-Inflationary Policies. Asian Finance & Banking Review, 3(1), 44-73. https://doi.org/10.46281/asfbr.v3i1.295
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Copyright (c) 2019 Bijan Bidabad
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