Identifying the adopted Monetary Policy Rule by the Central Bank of Iran

It is obvious that an optimal policy should consider main the dimensions of the phenomenon that can affect the transmission mechanism of that policy. In an open economy, it is expected that variables of the foreign sector play important role in its economic behavior. Therefore, it needs that any optimal policy in an open economy should be designed in such a way which involves changes in the foreign sector. Due to this fact, this paper is aimed at assessing the monetary policy of Central Bank of Iran to determine whether this policy takes a right way or not. To do so, a DSGE model along with MCMC criteria is employed. The main result indicates that the decision of Central Bank on monetary policy follows McCallum rule without any response to exchange rate shocks.