Monetary Policy in Iran: The Challenge of Reducing Inflation

Leo Bonato and Abdelali Jbili
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Abdelali Jbili : International Monetary Fund

Journal of Money and Economy, 2009, vol. 5, issue 2, 129-148

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.

Keywords: Iran; monetary policy; inflation; exchange rate (search for similar items in EconPapers)
JEL-codes: E31 E51 (search for similar items in EconPapers)
Date: 2009
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