The Relationship between Financial Development and the Monetary Policy Efficiency Using Fuzzy Combined Indicator

Document Type : Research Paper


1 Professor, Department of Economics at the University of Tehran

2 Associate Professor, Department of Economics, University of Tehran,

3 Ph.D Student, Department of Economics at the University of Tehran,


The purpose of this study is to find out the impact of financial development on monetary policy efficiency (the effect of financial development on the central bank's target variables) in OECD and OPEC countries for the period of 2001-2017, based on annual data. To achieve this purpose, a comprehensive index, which had been introduced by the International Monetary Fund (IMF) in 2016, was optimized by using fuzzy logic and was used as a proxy for financial development. Additionally, in order to evaluate the interrelationships among variables in model, we used the GMM econometric model. The results indicate that in OPEC countries, the weak financial development increases the efficiency of monetary policies on inflation, while it does not have a significant effect on output growth, and also the results show that in OECD countries, the strong financial development increases the efficiency of monetary policies on output growth and inflation, but these effects are small compared to OPEC countries.
JEL Classification: E52, O23, G21


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