The Impact of the Required Reserve Rate on the Inflation Rate and Economic Growth in Iran (System of Simultaneous Equations Approach)

Saadatmehr, Masoud; Mansori, Nasrin

doi:10.30473/egdr.2022.65506.6598

Document Type : ORIGINAL ARTICLE

Authors

Assistant Professor, Department of Economics, Payame Noor University, Tehran, Iran.

https://doi.org/10.30473/egdr.2022.65506.6598

Abstract

Iran's economy has been facing the phenomenon of inflation for many decades, which has been unbridled inflation in many periods. Therefore, in order to control the inflation rate, some policy makers are looking towards applying a contractionary monetary policy by increasing the required reserve rate. But this policy has been criticized due to the fact that it reduces production and economic growth and as a result creates recession in the economy. To what extent the increase in the required reserve rate with the aim of controlling inflation will reduce production and economic growth is a central question that the present research was made to answer. For this purpose, the system of simultaneous equations using the 3SLS method has been used. The data used in the present research is a time series of 1979-2018, which was collected from the database of the Central Bank of the Islamic Republic of Iran. The results showed that the variables of the required reserve rate and the excess reserve rate have a negative effect and the monetary base growth rate has a positive effect on the volume of money in Iran's economy. Also, the results showed that increasing the required reserve rate as a contractionary monetary policy can reduce the growth rate of the money volume and the inflation rate in the Iranian economy without changing the real production.

Keywords

References

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The Impact of the Required Reserve Rate on the Inflation Rate and Economic Growth in Iran (System of Simultaneous Equations Approach)

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Volume 13, Issue 52November 2023Pages 92-81

Volume 13, Issue 52
November 2023
Pages 92-81