Inflation Dynamics and Monetary Policy Effectiveness in Iran: An Approach Based on Nonlinear Dynamic Stochastic General Equilibrium Model

Document Type : Research article

Authors

1 Department of Economics, Payame Noor University, Tehran, Iran

2 School of Mathematics and Computer Science, Damghan University, Damghan, Iran

Abstract

This study examines the dynamics of inflation and the effectiveness of monetary policy in the Iranian economy. For this purpose, a nonlinear dynamic stochastic general equilibrium model with state‑dependent features and endogenous indexation has been developed. The results show that inflation in Iran is nonlinear and regime-dependent in nature. In periods of high and stable inflation, strengthening indexation and the formation of adaptive expectations leads to self-reinforcing inflation and weakening the effectiveness of monetary policy. Also, forward-looking monetary policy rules with a medium-term horizon perform better in stabilizing expectations and reducing recession costs compared to simultaneous rules. These findings emphasize the necessity of designing state-based monetary policies and carrying out structural reforms to contain inflationary dynamics in Iran. 

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Analytical and Numerical Solutions for Nonlinear Equations
Volume 12, Issue 1
November 2026
Pages 68-89

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History

  • Receive Date: 18 June 2026
  • Revise Date: 28 July 2026
  • Accept Date: 18 August 2026
  • Publish Date: 02 November 2026

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