Analysis of Monetary Policy and Economic Growth in Iran

This paper examines asymmetric effect of monetary shocks on economic growth Applying econometric technique by co-integration analysis and Error correction mechanism in Iran economy during the period 1960-2010. The results revealed that the negative shocks have much more effects on output than positive ones. Monetary disequilibrium also has asymmetric effects on economic growth so that the coefficient of excess money supply is not significant in any specifications, whereas excess demand have a negative significant effect on economic growth. Therefore, although policy makers can stimulate slightly short run economic growth by increasing unexpected money, they must pay a higher cost in the long run to decrease inflation.