Aim and Introduction:



The choice between interest rate and money supply as the objective of monetary policy has always been a question in economic literature. Based on the results of many economic studies, the interest rate is a more appropriate target. Due to the instability of the demand for money, since the mid-1980s, the money supply has lost its generality, and instead, the use of interest rates has been used.


In Iran's economy, due to the prohibition of using bonds because of their usurious nature and determining the interest rates of bank deposits in a mandatory manner, it has not been possible to use the interest rate as the goal of monetary policy in recent years. In most of the researches, the monetary base growth rate is used as the target of the central bank's monetary policy.
This research tries to use dynamic stochastic general equilibrium approach in Iran, to examine the effects of implementing monetary policy through the regulated interbank interest rate and transaction of government debt securities and to compare its effects on the macroeconomic variables with the effects of common monetary policy of the central bank (setting the growth rate of the monetary base through changing the rate legal reserve).
Methodology:
In this research, a stochastic dynamic general equilibrium model of an open economy has been designed to analyze the effects of different monetary policy regimes on the macro variables of the Iranian economy. This model analyzes the characteristics of the Iranian economy such as the dependency on oil revenues, the persistent budget deficit and the misalignment of central bank's balance sheet. Also, based on the new Keynesian school, price stickiness has been considered in the model by Calvo's method (1983) for domestic, import and export intermediary companies.
Results and Discussion:
According to the graphs of impulse-response functions, as a result of the positive impulse of the interbank interest rate, the demand of banks for borrowing and the monetary base are reduced. The bank resources are limited, and the facilities granted to the companies are reduced. Due to the stability of the company's demand, as a result of the additional demand for facilities, the interest rate of the facilities will increase.
By reducing the facilities granted to companies, the company must hire fewer factors based on optimization due to the higher cost of financing. The demand and wages of household labor will decrease. Due to the decrease in the demand for labor and capital by the company, the non-oil production also decreases. As a result, the inflation rate increases with the decrease in supply. On the other hand, with an increase in the real interest rate based on Euler's relationship and a decrease in household income due to a decrease in wages and employment of labor by companies, consumer spending decreases. Therefore, in response to the decrease in the demand of the whole economy, the price level gradually decreases and the economy returns to equilibrium. Due to the fact that in the model, imports are limited to consumer goods, with the reduction of household consumption expenses, imports also decrease.
According to the graphs of the impulse response function, with the increase in the growth rate of the monetary base, the resources available to banks increase, and bank facilities get available to companies in order to cover expenses. The facilities granted to the companies will increase, and due to the constant demand of the company, the cost of financing will decrease by reducing the interest rate of the facilities. As a result of optimization, by reducing the final cost of hiring agents, the company should employ more agents. So, the demand for household labor will increase. By hiring more factors by the company, non-oil production in the economy increases after impulse.
Conclusion:
The positive impulse of the interest rate of the interbank market (as a contractionary policy of the central bank) has a negative effect on the non-oil production by increasing the cost of financing of companies and reducing the facilities granted. As the supply of the entire economy decreases, the inflation rate also increases after the impulse is applied.
The positive momentum of the growth rate of the monetary base (as the central bank's expansionary policy) is expected to increase the lending of banks, and to reduce the interest rate of the facilities, if bank resources increase.
By comparing these impulse response functions under the application of each monetary policy regime, it seems that the effect of the impulse of the monetary base growth rate compared to the impulse of the interbank interest rate on the economy disappears in shorter periods.
These results are expected due to the fact that the targeting of interbank interest rates has less effect on the macroeconomic variables in Iran due to the restrictions on the issuance of government debt bonds and the implementation of open market operations by the central bank.