Analyzing the effects of interest rate shocks in Iran's economy considering shadow banking, using stochastic dynamic general equilibrium model

In recent years, the expansion of financial institutions such as investment funds, non-bank financial and credit institutions, and financing funds has led to the emergence of a sector in iran's economy known as shadow banking. this sector operates in parallel with the standard banking sector. the formation of such a structure can be considered part of the monetary transmission mechanism and macroeconomic variables. the present study elucidates two key findings: first, the extent of shadow banking in iran's economy is increasing rapidly, second, this expansion diminishes the effectiveness of monetary policies. to model the shadow banking sector, this study employs a dynamic stochastic general equilibrium (dsge) model, a monetary dsge model is able to replicate the empirical facts when augmented with intermediaries that allow for regulatory arbitrage on the one hand, and household portfolio rebalancing on the other. incorporating various sectors of the economy 2010 to 2019. the simulation results demonstrate that the impact of the shadow banking sector on macroeconomic variables is analogous to that of the standard banking sector, underscoring its influence on the iranian economy. furthermore, simulations of interest rate shocks reveal that developments in interest rates within the shadow banking sector mirror the conventional monetary transmission mechanism in the standard banking sector. consequently, advancements in this sector can significantly influence the future trajectory of economic variables.