Financial Development and Effectiveness of Anti-Inflationary Monetary Policies in Iran

Increasing growth of human knowledge and the effects of its expansion on the various dimensions of economy has increased the welfare of societies. It has affected the function of many economic policy instruments by influencing mechanisms. In this paper, the impacts of financial development on the effectiveness of monetary policy have been observed with special attention to anti-inflationary monetary policies in Iran. For this purpose, we examined the effects of monetary policies using the two instruments of monetary base and interest rates with the aim of controlling inflation, separately. Moreover, in the autoregressive distributed lags models for the period 1368:1 to 1395:4, the effectiveness of each policy has been extracted over time by the rolling regression models. The results again re-estimated in another autoregressive distributed lags model based on the financial development indicator. The coefficients showed from the computed regression demonstrates the decreasing effect of the financial development indicator on the effectiveness of the monetary policies, in the sense that with the development of the financial systems and increasing the methods of access to capital, the impacts of monetary policies of monetary base change and interest rates change on the inflation will be decreased.