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:: year 13, Issue 45 (11-2020) ::
JMBR 2020, 13(45): 557-590 Back to browse issues page
The dilemma of Rationality or Providing Efficiency in Monetary Policy Making: An Application of Arrow’s
Alireza Rafiee 1, Majid Eshaghi Gordji2, Aliraza Erfani3
1- Ph.D. Student of Monetary Economics, Faculty of Economics, Management and Administrative Sciences; Semnan University
2- professor of Mathematics, Faculty of Mathematics, Statistics and Computer Sciences; Semnan University
3- Associate Professor of Economics, Faculty of Economics, Management and Administrative Sciences; Semnan University
Abstract:   (176 Views)
Financial frictions inducted in the model is a new contribution to monetary economics. Herein, an analytical tool arranges monetary policymaking in the form of two steps procedure. In the first step, an appropriate amount of money supply should be assessed; and in the second step, that appropriate amount should be allocated to several sectors. The Central Bank obligates the step of assessment and entrusts to the Board of Professional Banks the allocating step; this way provides more efficiency since the professional banks in comparison to the central bank have more and better information about economic sectors. According to Arrow's theorem, in allocating, rationality arises because collective decision-making happens in this step. The mathematical proposition about this policymaking narrates the dilemma of policymaking: two-step monetary policymaking makes better efficiency but worse rationality. The results show that Arrow's theorem contributions prove that the proposition is correct and this paper presents three approaches to get out from this dilemma of policymaking.
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Type of Study: Theoretical Article | Subject: Monetary Policy, Central Banking, and the Supply of Money and Credit (E5)
Received: 2019/05/18 | Accepted: 2020/12/12 | Published: 2021/06/23
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year 13, Issue 45 (11-2020) Back to browse issues page
فصلنامه پژوهش‌های پولی-بانکی Journal of Monetary & Banking Research
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