Simulation of the Effect of Monetary Policy on the Production Upsurge of the Iranian Economy: A System Dynamics Approach

These days, monetary policy is of great importance in the economy and the mechanism of diffusion of its effects on macroeconomic variables. This research is aimed at investigating the effect of monetary policy through the most important channels of monetary transfer on macroeconomic variables in Iran, which has been used to explain this effect as accurately as possible in a 20-year time period. Having explained the cause-and-effect relationships between the variables, the researchers have identified the rate and flow relationships. Then the model has been implemented and the scenario has been developed. Research findings revealed that increasing money supply in Iran inserts a positive effect on consumption, savings and price levels, but has an adverse effect on investment. The effect of changes in the money supply on production causes increase in the money supply and the GDP grows in the short run, but in the long run, it reduces production. As a result, economic policymakers have to put money supply control on their agenda in order to achieve economic goals and the vision document.