The relationship between monetary policy and the output gap, inflation deviation and the gap in the foreign exchange market in Iran with the approach of Taylor's rule

Monetary policy modeling is one of the important areas in macroeconomics, which has been expanded after the pioneering study of Taylor (1993) in the framework of the central bank's reaction function. By applying new econometric approaches, economists try to answer the controversies in the literature and provide new implications by evaluating the monetary policy and its relationship with macroeconomic stability. In this regard, the current research has used the continuous wavelet transform and its tools to investigate the relationship between monetary policy and the production gap, inflation deviation and the gap in the foreign exchange market in Iran's economy. The results show that in the period of 1989-2022, the central bank only in the short term (less than one year) puts the output gap under its target or affects it arbitrarily. This is important for the deviation of inflation from its long-term trend in the short-term and medium-term (1-4 years). Due to the intertwining of the monetary policy and the currency market, which is due to the lack of independence of the central bank, the tendency to suppress the exchange rate and the contagion of imbalances to the monetary base, the relationship between the monetary policy and the gap in the currency market is unstable.The information and analysis presented in the field of time-frequency, taking into account the developments of Iran's economy, can be useful for those interested in this field.