Study of the Monetary Policy Transmission Mechanism and its Timing in Iran

In this paper, the monetary policy transmission process within the channels of the credit, exchang rate, assets prices and interest rate is studied for the Iranian economy using Vector Autoregressive Approach during 1988Q1 to 2007Q4. The results represent that the effect of changes in money supply (monetary base) is not statistically significant on output. but; the inflation impact is instantaneous and noticeable. The variance decomposition results are, also, consistent with this finding. In particular, a monetary innovation explains 5.7 and 72 percent of output and inflation innovations, respectively. Likewise, the channels play no role in transmitting the effect of monetary policy to output. But, in respect to inflation, they have a significant effect. Specifically, the contribution of asset, interest rate, exchange rate and credit channels in nine quarter horizons amount to 35.7, 30.6, 19, and 3.2 percent, respectively. They, all together, explain 88.5 percent of the general price level of changes.