comparing the effect of monetary and financial policy in the currency regimes of Iran's economy on growth and inflation with the stochastic dynamic general equilibrium approach

Articles in Press

Document Type : Research Paper

Authors

1 Phd student in Faculty of Economics and Political Sciences, Shahid Beheshti University

2 Assistant Professor, Department of Economic Sciences, Faculty of Economics and Political Sciences, Shahid Beheshti University

3 Assistant Professor Faculty of Economics and Political Sciences, Shahid Beheshti University,

4 Planning and Budget Organization

10.22034/epj.2024.21631.2597

Abstract

The effectiveness of monetary and financial policies on production and inflation depends on various factors such as currency regimes. This article compares the effects of monetary and financial policies on growth and production with regard to the currency regimes experienced in Iran by using a stochastic dynamic general equilibrium model of an open economy. In the first period of the years (1368-1380), the multi-rate regime ruled the country. In the second period (1381-1390), the managed floating regime was announced as the country's currency regime. In the third period (1391-1401) and with the intensification of international sanctions, the multi-rate regime reigned over the country again. The results of this study show that the effect of expansionary fiscal policy on production is positive in multi-rate regimes and negative in managed floating regimes. Also, the positive effect of the government expenditure shock on inflation in the multi-rate regime of the first period is greater than that of the third period. The results show that the adoption of an expansionary monetary policy in the first period had a positive effect on production, and its effect was negative in the second and third periods, and inflation increased in all three periods of the currency regime. The results of the welfare loss function show that the implementation of financial and monetary policy in the managed floating regime will cause the least welfare loss. Therefore, according to the legal requirement of the monetary authority to implement the managed floating currency regime, it is suggested that the prerequisites for its implementation such as inflation targeting, independence of the central bank and compliance with the range of exchange rate fluctuations should be taken into account for its more appropriate performance.

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The Journal of Economic Policy

Articles in Press, Accepted Manuscript
Available Online from 31 December 2024

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