Optimal Monetary Policy in Iran

Since the economy of Iran has the features of a small and open economy, a model is developed with these features in this paper. The model is based on micro optimization, and the prices are staggered. Then the model is calibrated to Iran data. The calibrated model is utilized to evaluate the performance of some monetary policy rules. Domestic inflation targeting is the optimal monetary policy, and a Taylor-type inflation targeting rule replicates the result of optimal policy. Moreover, peged exchange rate and CPI inflation targeting have respectively the worst and the best performance among studied simple rules.

Keywords:

business cycles , DSGE , monetary policy , staggered price , policy rule