The Impacts of Monetary Policies in Iran: A DSGE Approach

Recently, dynamic stochastic general equilibrium models (DSGE) capture so much attention. These models, which first used to describe real business cycles, paid particular attention to technological shocks as the main sources for economic fluctuations. In fact, the role of monetary policies just came to light when the new Keynesians started using DSGE models by introducing nominal rigidities and imperfect competition. This paper builds a DSGE model for Iran and estimated the log-linearized version by Bayesian approach. It argues that without modeling nominal rigidities, the impact of monetary policies on real variables is difficult to detect. It goes further and asserts that it is only possible to investigate the real impacts of monetary policies, when the model is equipped with nominal rigidities.