The Realationship between Monetary Policy and Financial Condition Index in Iran (MSIHA Approach)

Monetary policy is one of the critical economic policies that affect the macro variables of every country. The Financial Condition Index (FCI) is one of the composite variables affected by monetary policy. This study aimed to measure the effect of monetary policy through different channels on Iran’s FCI. The FCI was first calculated using time series data from 1991-2023 and the Principal Component Approach econometric method. The effect of monetary policy on the country’s FCI using the Markov-switching (MSIHA (2) AR (2)) model was calculated and estimated. The results of the estimation of the Markov-switching model indicate that the studied period can be divided into two regimes of zero and one. These results are consistent with research hypotheses and theoretical foundations, which is not far from expected considering the economic conditions.