A Survey on the Effect of Increase of Bank Interest Rate on Economic Growth of Iran using the New-Keynesian Dynamic Stochastic General Equilibrium Model

In Iran، bank interest rate is determined by Central Bank، thus، due to high inflation rates، real interest rate becomes negative. This in turn leads to financial repression. In this research، based on Mackinnon and Shaw’s view، the effect of bank loans interest rate on the investment and production of Iran is examined. To do that، first، a DSGE model for the economy of Iran was calculated. This model includes four parts: household، firm، trading banks، both government and Central Bank. The results indicate that an increase in interest rate has increased bank deposits while investment، bank credits and GDP are reduced. Thus the increase of bank interest rate is led to reduction of economic growth of Iran. Thus، Mackinnon and Shaw ۥs Theory is rejected in Iran’s economy.