Oil shocks, financial stability and implementing macroeconomics and macro‐prudential policies in an oil‐exporting economy

Abstract

AbstractSince the financial crisis of 2007–2008, macro‐prudential policies have been widely used to achieve financial stability. Moreover, for most oil‐exporting economies, oil revenues are an essential source of fluctuations in macroeconomic variables, which necessitate the adoption of macroeconomic stabilization policies. By constructing a macro‐financial DSGE model, this paper examines the role of macro‐prudential policies in financial stability and how they interact with macroeconomic policies in an oil‐exporting economy. Applying quarterly data of the economy of Iran during 1990–2017, the results show that macroeconomic stabilization policies are not considered as sufficient condition for financial stability. The implementation of macro‐prudential instruments is necessary to reduce financial instability. Moreover, the results indicate that the cooperation of the macro‐prudential and monetary authorities increases the effectiveness of the macro‐prudential and monetary policies.