Role of Financial Development in Monetary Policy Effectiveness in determinate of Input and inflation

The purpose of this study is to investigate the impact of financial development on efficiency of monetary policy in Iran during 1979-2020. The ratio of banks' domestic credit to GDP was considered as an indicator of financial development based on banking sector and ratio of the value of stock market transactions to GDP was considered as an indicator of financial development based on the capital market. In this regard, 4 models were introduced to achieve research objectives and were estimated using the Kalman-Filter approach. The results of estimating the first two models of the research showed that with improvement of financial development indicators, the efficiency of monetary policy in influencing economic growth will decrease. The results of estimating the third and fourth models of the study also showed that effect of financial development indicators on efficiency of monetary policy in impact on inflation has been negative and statistically significant, meaning that with improvement of financial development indicators in country, monetary policies will lead to lower inflation.