Inflation Targeting according to Taylor's and McCallum’s Time-Varying Rules in Iran

Document Type : پژوهشی

Authors

• Mehdi Yazdani
• Seyed Majid Momeni

Shahid Beheshti University

https://doi.org/10.22067/pm.v24i13.55588

Abstract

Inflation targeting is a monetary policy system that the central bank independence, the absence of fiscal dominance, the determinate and unique target and the efficient outline for prediction of inflationa are its requirements. However the target should be determine and checked by the monetary strategy. Also in successful countries to reducing inflation, structural reforms in economy such as public and banking sectors, have had an important role.
Meanwhile the investigation of other countries experience in regards inflation targeting, the study tries to suggest a monetary policy rule that its coefficients are time-varying. Hence using state space model and Kalman filter, the study tries to investigate Taylor and McCallum rules for Iranian economy during 1378:01-1393:04 which their coefficients are time-varying.
The results show that the monetary policy according to Taylor's and McCallum’s time-varying rules has respond to inflation and exchange rate changes and the non-time-varying coefficients such as GDP gap, dummy variable and the lag of policy variable.

Keywords

• Inflation Targeting
• Taylor and McCallum Rule
• Time Varying Parameters
• State Space Model
• Kalman filter