efficiency of monetary policy in affecting the inflation and economic growth in iran

the subject of monetary policy orientation and tailoring a framework within which the credibility and desirability of the policies and the policy makers is enhanced, while the most important goal of policies, i.e reaching to and preserving a low and stable inflation rate is achieved, has recently been a controversial issue for a large number of economists. in fact the necessity arised since the outcomes of the monetary targeting and monetary rule did not satisfactorily work out. although monetary credibility through commitment to intermediate goals is more achievable and more convenient for policy makers, inability to achieve a law and stable inflation rate still poses itself as a threat to the credibility of monetary authority and economic policy makers. failure to materialize monetary goals (price stability) is due to the instability of the relation between intermediate monetary variables and the final goal which itself is mainly because of the frequent changes in the velocity of money over time. on the other hand, time inconsistency between inflation goal and economic growth and occurrence of variable and indertermined lags in the influence of monetary policy on economic goals is a further reason for inefficiency of the monetary mechanism through monetary aggregates targeting. hence, the present paper is an effort to expound the mentioned instability in the from of simultaneous efficiency analysis of influence and economic growth through recursive state-space method. the findings of the study demonstrate that the effectiveness of monetary policies on inflation and economic growth, have varied in different periods, and indicating that the designed goals of inflation and economic growth is not obtainable through a single monetary rule. the problem has arised because of the instability of inflationary expectations due to instability of exchange of exchange rate and also because of the exogenous shocks (oil price shocks) and consequently instability of the degree of effectiveness of monetary policy and ambiguity in the length of the lags. in general, the results of the present study stress on the inefficiency of traditional mechanisms of monetary policies, and set forth the necessity to initiate an efficient mechanism based on the economy’s real needs (price stabilization priorities and economic growth). making use of inflationary expectations as a lever through establishing transparency in the design of the policies and goals, announcing the strategy to achieve goals and the reasons of success and failure to achieve the predetermined goals, are other characteristics of the present study. the results further emphasize the dominant role that monetary growth plays in inflation formation and its weak role in achieving economic growth. while a particular attention has been given to factors like exchange rate and the interactive effects of the inflation and the economic growth are also taken into account.