Oil price shocks and monetary policy in Iran: Evidences based on a Dynamic Stochastic General Equilibrium model

This study investigates the role of oil price shocks on monetary policy of the Iranian central bank، using a Dynamic Stochastic General Equilibrium (DSGE) model. The model considers the oil price shocks channel in government spending and includes the consolidated constraint of government and central bank. The Bayesian econometrics approach has been applied for model estimation using quarterly time series data from 1370 to 1389. The results show that، oil price shocks have positive and significant impact on monetary base and also money and government spending. Moreover، oil price shocks increase output and inflation significantly. The results represent a significant role of oil price shocks in monetary policy formation and illustrate government fiscal domination on central bank. In fact، our results documents that، the monetary policy of central bank has been dominated by government funding.