The Impact of Domestic and Foreign Monetary Policy on Iran's economy: Global Modeling

One of the most striking features of the business cycles across countries is the patterns of comovement of output, inflation, interest rates and real equity prices. Using quarterly data over the 1996Q1-2015Q5 period and a global vector regression model (GVAR) for Iran, the largest trading partners of Iran including China, India, Russian, Korea, Turkey, the European :union:, and the United States, this paper empirically examines the effects of domestic and foreign monetary policies on Iranchr('39')s macroeconomic variables (including real production, inflation, short-term interest rate, real exchange rate). The results of domestic monetary policies on Iranchr('39')s macroeconomic variables illustrate a form of puzzle price on how monetary policy shocks affect inflation in Iran. Also According to the results, the effects of the positive shocks of domestic interest rate on real GDP in Iran is negative. Based on the results, Iranchr('39')s real exchange rate response to the positive shock of domestic interest rates of Iran is negative and significant. The results of foreign monetary policies on Iranchr('39')s macroeconomic illuminate that only the effects of a positive shock to china interest rate are significant and negative on Iranchr('39')s inflation. In addition, the results indicate a significant independency of Iran real GDP to the monetary policy shocks of the other trading partners of Iran. In addition, the response of Iran real exchange rate to positive shocks in EU and Turkey is at a positive and significant level. The results indicate the closed economic structure of Iran, to the point that global economic crises that lead to a recession in other countries have the least impact on the Iranian economy.