The Effects of Monetary Policy on Production and Prices in Iran: A Structural Vector Error Correction (SVEC) Approach

The main goal of this paper is study of central bank′s monetary policies effects on GDP and prices with use of structural vector error correction (SVEC) approach in Iran. The empirical results from the estimation of relationships between variables in the period 1368Q1-1387Q4 shows that a positive shock of money increase production level in short time, but it has no effect on production level in long run, while in short and long run it lead to increase prices. These results based on monetarist's view show that money does not affect production levels in long run. Also the results show that the Reserve Requirement Ratio as monetary policy instrument not affect the level of production but Central Bank Claims on Banks could affect level of production only in short run and monetary policies adopted by both instruments affect prices only in long run.