Theoretical and Empirical Study of Natural Rate of Interest: Conventional and Contrastive Points of View on the Iranian Economy during 1352-87

We aim to estimate the natural rate of interest for the Iranian economy during 1352-87. From a conventional point of view، natural rate of interest is a rate in which output is at its potential level and inflation is at a constant rate. However، in this paper، we try to present a new definition for natural rate of interest. From this viewpoint، natural rate of interest is only a non-monetary origin of market rate of interest. By this rate، we have no constant inflation، and it can occur in under-full employment conditions. Our empirical work shows that natural rate of interest، according to the new definition، is lower than money rate of interest. This result confirms that the current unemployment rate is higher than its natural rate. To eliminate the unemployment gap and to increase real money supply، it is necessary to decrease the monetary component of the market rate of interest by reforming the monetary and banking system.