The Effect of Central Bank Intervention Pressure on the Country’s Business Cycles in Recession and Expansion Regimes
Keywords:
Central bank intervention pressure, business cycles, Markov switching regime change modelAbstract
This study seeks to examine the effect of central bank intervention pressure on the country’s business cycles during recession and expansion regimes. For this purpose, using a rotational model and the Markov-switching regime change approach, the effects of the study variables are analyzed over the period from 1994 to 2022. The estimation results of the Markov model for recession and expansion periods indicate that the central bank intervention index, deviations of the exchange rate from its long-term path, the effect of sanctions, and the inflation rate during both recession and expansion periods have a positive impact on the output gap. Moreover, the variable of the growth rate of foreign exchange revenues from oil sales during expansion periods leads to a reduction in the output gap. These effects over the years should be analyzed in light of the central bank’s intervention in the national economy. Specifically, the greater the growth in the exchange rate, the more policymakers have sought to react in order to control the exchange rate growth and prevent further increases. However, the response to deviations in the exchange rate diminishes. Therefore, under conditions where the exchange rate experiences higher growth, policymakers tend to focus more on controlling the exchange rate and pay less attention to its deviations.
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Copyright (c) 2024 Moslem Rezapoor Darsara (Author); khosro Azizi (Corresponding author); Mehdi Fathabadi, Saleh Ghavidel Doostkoue (Author)
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