Incomplete interest rate pass-through and monetary policy in Iran

Abstract
The aim of this research is analyzing interest rate pass – through of lending and deposits in Iran. Interest rate pass – through from policy interest rate to banking micro interest rates is among most important effective factors on the monetary transmission mechanism. Thereby, more complete interest rate pass through means more efficiency monetary policy. To do this analysis, a DSGE model with banking system is designed. In this model, the volume of deposits is determined by patient households and loans is devoted to impatient households. Moreover, policy interest rate is determined by central bank in interbank market. The interest rate pass- through of lending and deposits are determined by measuring the gap between these two rates with policy rate. By using quarterly data on the period 1383-1398 and Bayesian approach, the structural parameters of the model are estimated. Based on results, the interest rate pass – through of lending and deposits are 0.13 and 0.52, respectively. These  results reveals that in response to variations in the policy rate, the lending rate and deposit rate will changes, lower than one – to -one, therefore, the efficiency of monetary policy in Iran is not sufficient to satisfy inflation and output targets.