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Monetary Policy in Iran: The Challenge of Reducing Inflation

Author

Listed:
  • Bonato , Leo

    (International Monetary Fund)

  • Jbili , Abdelali

    (International Monetary Fund)

Abstract

The conduct of monetary policy in an oil economy with a managed floating exchange rate regime can be challenging in an environment of fiscal dominance and incomplete transition to a market economy. The Five-Year Development Plans provide a natural benchmark against which to assess monetary policy performance in Iran. Price stability has proved elusive, with liquidity growth targets constantly exceeded by a large margin. The paper examines the reasons behind these results and, based on the lessons that can be drawn from the literature and the international experience, makes some proposals on how to improve on this record. Although fiscal dominance remains the main obstacle to disinflation, reforms to strengthen the anti-inflationary mandate and the operational independence of the central bank, and more effective monetary instruments are also needed.

Suggested Citation

  • Bonato , Leo & Jbili , Abdelali, 2009. "Monetary Policy in Iran: The Challenge of Reducing Inflation," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 5(2), pages 129-148, April.
    • Handle: RePEc:mbr:jmonec:v:5:y:2009:i:2:p:129-148
    as

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    References listed on IDEAS

    as
    1. By Mohsin S. Khan & Abdelhak S. Senhadji, 2001. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 1-1.
    2. Mr. Mangal Goswami & Oya Celasun, 2002. "An Analysis of Money Demand and Inflation in the Islamic Republic of Iran," IMF Working Papers 2002/205, International Monetary Fund.
    3. Oya Celasun, 2003. "Exchange Rate Regime Considerations in an Oil Economy: The Case of the Islamic Republic of Iran," IMF Working Papers 2003/026, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Iran; monetary policy; inflation; exchange rate;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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