Analyzing the Impact of Monetary Policy in a Dynamic General Equilibrium Model: Money in Utility Function Approach

The impact of monetary policy on nominal and real variables in the economy is very important and controversial issues in monetary economics. Thus, the interaction between the real and monetary sectors, are the questions that different schools of economic have different responses and assumptions in this design is neutral and super-neutral of money in the long run. Accordingly, the acceptance or rejection each of the above hypotheses, effects on the role of monetary policy in the economy. This study, has been investigated the effects of monetary policy in the framework of a dynamic general equilibrium model on inflation and welfare, based on the money in utility function in Iran's economy. Then, the model is solved by using dynamic optimization and analyzed the results in the steady state. Calibration results and sensitivity analysis in steady state indicate that by decreasing the growth rate of money supply from 22% in the base state to 12%, reduces inflation rate from 20.45% to 10.57% decrease and increases real money balances from 0.1304 to 0.1352 unit, But the ratio of capital to labor, per capita production and per capita consumption do not change in the steady state. Finally, with a decrease in the rate of monetary growth and the increase in real money balances, the welfare increases in the steady state situation.