Dollar’s Rials Injected into Iran’s Economy

Abstract

Nowadays awareness about monetary conditions is really important for economic agents. Monetary conditions index is a significant indicator in regards of central bank’s monetary policies so that it shows the expansion and contraction of monetary policies. In order to investigate the Dollar’s Rials injected into Iran economy we have applied the MCI. Actually change in real interest rate and real exchange rate to the base year are considered while positive changes in MCI indicate a contraction monetary policy and negative changes indicate an expansion monetary policy. According to our findings, application of monetary policy in Iran is severely affected by changes in foreign exchange incomes as a result of increase in oil price. Therefore, the government’s expenditures should be adjusted based on inflation and stagnation gap. Considering the lack of real data, in this study it is tried to calculate the monetary conditions index for Iran’s economy using annual time series data and Johansen-Juselius convergence method over the period 2008-1987. In fact the expansion and contraction monetary policy implemented by central bank are separated and results show that the government’s monetary policy was contractile in the years 1987, 1989, 1991, 1992, 1995, 1999, 2000, 2003, 2005. It means that there was no Dollar’s Rials injection into economy. About the other years monetary policy was expansionary and Dollar’s Rials has been injected into economy for twenty years.