The Effects of Monetary Policies in Iran's Economy: A Financial Computable General Equilibrium Model

This paper has assessed the neutrality of money in Iran’s economy by using a Computable General Equilibrium (CGE) model. Regarding this assessment, initially a computable general equilibrium was organized in which the financial market plays an essential role. Then, for the calibration of the coefficients, in addition to organizing a Social Accounting Matrix (SAM), a financial balance sheet was also provided. In this paper, the tool of reserve requirement rate is being used as instrumental variable representing monetary policy. The result of this research indicates that the monetary policies have had significant effect on Iran’s economy. There has been a reverse relationship between the changes in reserve requirement rate and gross national product. One of the other finding of this research is that changes in monetary tool has significant effects on GNP and so money is not neutral in Iran’s economy especially when a general equilibrium type of model is being applied. For solving the model the GAMS software and Non-Linear Programming (NLP) method were used.