Impact of Monetary Shocks on Economic Growth and Inflation in Iran - The Dynamic Stochastic General Equilibrium Approach

Iran Economy has experienced monetary shocks and rising inflation، in recent years. For this reason، it is expected that monetary shock has a positive effect on inflation. So، the paper studies impact of monetary shock on economic growth and inflation of Iran. The DSGE approach based on New Keynesian School is used to examine the impulse response functions and calculating the endogenous variables moments. To make compatible the model with Iranian economy we take in consideration the price stickiness، oil income، government and central bank balance، and the roll of business banks. Data of the period of 1973-2010 are sourced from CBI. Results indicate that technology shock increases the non-oil production and decreases the inflation. The effects of monetary and oil shocks on real production and on inflation are positive. On the other hand technology and oil shocks increase the economic growth، but monetary shock has no effect on growth.