Document Type : Research Paper

Author

• Naserali Yadolahzadeh Tabari

Islamic Azad University, Babol Branch, Faculty Group, Babol, Iran

Abstract

Inflation targeting as an monetary policy framework, requiring some
prerequisites to warrant its prosperity. This research tends to investigate the
applicability of inflation targeting to Iranian economy. Our findings on the existence
of potential monetary policy instruments in order to control the inflation indicate that
exchange rate can be used in short term, but the over-emphasis and over
dependency on it, is not suggested in inflation targeting.
Deposit rates are officially determined not based on economic conditions, and
had negligible effect on economic variables, so using the deposit's rates as an
instrument to control the inflation is impossible. The effects of money supply on the
price level in the short- term is low, in the mid-term is moderate, and its maximum
effect revealing in the long- term; thus the money supply cannot be used as a very
effective instrument of monetary policy, for the proper time horizon in inflation
targeting framework is approximately two years.

Keywords

• Inflation Targeting
• Monetary Transmission Mechanism
• Monetary Policy Instruments
• Iranian Economy