An Investigation into the Impacts of Monetary and Fiscal Policies on Iran Macroeconomic Indicators

This study investigated the effectiveness of monetary and fiscal policies’ targets, determined in the 4th national economic development program of Iran, using dynamic simulation approach. To this end, a macroeconometrics model was designed for Iran economy. In model specification, it was tried to consider the influential mechanisms of monetary and fiscal policies on all important sectors of economy. Equations were estimated for time period of 1971-2004 using Auto Regressive Distributed Lag method. When the models’ accuracy was confirmed, the impacts of monetary and fiscal policies’ targets, determined in the 4th program, on some important macroeconomics variables were predicted for time period of 2005-2013 using dynamic simulation. According to results, even though the application of the program’s targets reduces economic fluctuations, it cannot, however, put the economy on the determined mid-term and long-term path. Therefore, investigation of quantitative targets of monetary and fiscal policies in accordance with structural feature of Iran economy is recommended. However, in addition to the determination of mid-term and long-term targets, it is necessary to develop short-term compensating policies, especially for monetary policies, in order to minimize the deviation of the realized values from target values.