Optimal monetary policy with heterogeneous agents and its effect on the real sectors of economy in Iran

The purpose of this study was to investigate the effect of monetary policies based on heterogeneous agents. The heterogeneity of agents was examined for its effects on nominal and real sectors. In order to analyze the real sector in this study, the modeling of entrepreneurial firms was based on the protection of property rights. The results indicated that, under discretionary circumstances, the attempts of monetary authorities to redistribute wealth to the borrowing households, which has a higher utility than net wealth, can lead to changes in the inflation fluctuation. However, under the terms of the rule, the inflation pressure will be offset by changes in expectations of the future inflation over time. Also, the results indicated that, if the business environment improves and the index of the protection of property rights becomes favorable, the effect of monetary policies on the real sector will increase. Moreover, under discretionary circumstances, the attempts of monetary authorities to redistribute wealth to the borrowing households, which has a higher utility than net wealth, lead to changes in inflationary biases. However, under commitment circumstances, inflation pressure will be offset by changes in expectations for future inflation over time.