Determining the Optimal Interest Rate and Its Effects on Iran's Economy: An Application of Optimal Control Theories

The aim of this study is to estimate and calculate the optimal interest rate during the period 1993-2016 in order to achieve an optimal interest rate and a describe economic growth using the optimal control theory. Taking into account Iran’s economic, social and cultural planning, its economic growth rate is considered 6%, and the inflation targeting 10% in the present research. The results show that in order to achieve the describe economic growth rate of 6% in a year and the inflation targeting rate of 10%, the optimal interest rate needs to be 5.2%. By notice that the bank average interest rate for Iran has been 14.3% in the same period, it is suggested that bank interest rate decreases. This matter will increase investment and ultimately expand production and economic growth in the Iranian economy.