IDEAS home Printed from
   My bibliography  Save this paper

Economic Stability and the Central Bank: Rule or Discretion


  • Zangeneh, Hamid


The history of monetary policy in Iran, judging by their performance in keeping the value of the currency, maintaining a steady growth in the Gross Domestic Product, faltering investment, show that monetary policy has not been a portrait of consistent successes, to say the least. It has been employed in an on-again-off-again manner rather than as a tool for proactive decision making. In this paper the author shows the simulation results for the GDP growth under a regime of fixed monetary rule under different assumptions Comparing the historical changes in the monetary base with a policy rule would highlight the benefits of a response rule. One could see wider fluctuations in the monetary base compare to what was warranted according to the response function. They also show that in most of the cases, monetary base moved the opposite of what should have been done according to the response function. That is, in most years, they reduced the money supply when they should have increased it and increased the money supply when they should have decreased it. At times, it seems that they made a wrong monetary policy and the next year, found their mistake and over compensated for the mistake by overshooting or undershooting.

Suggested Citation

  • Zangeneh, Hamid, 2006. "Economic Stability and the Central Bank: Rule or Discretion," MPRA Paper 26860, University Library of Munich, Germany, revised 2006.
  • Handle: RePEc:pra:mprapa:26860

    Download full text from publisher

    File URL:
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    1. Michael J. Dueker & Andreas M. Fischer, 1998. "A guide to nominal feedback rules and their use for monetary policy," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 55-63.
    2. Hamburger, Michael J., 1983. "Recent velocity behavior, the demand for money and monetary policy," Proceedings, Federal Reserve Bank of San Francisco, issue Dec, pages 108-128.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Monetary rules v. discretion; Monetary policy; Response function; GDP growth and monetary stability;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:26860. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.