Inflation Targeting in Iran

  • Bijan Bidabad Professor, Economics and Chief Islamic Banking Advisor, Bank Melli, Iran
  • Nahid Kalbasi Anaraki Faculty Member, Monetary and Banking Research Academy
Keywords: Inflation Targeting, Macro-Econometric Model, Monetary Policy


Inflation targeting in various forms has been adopted by a number of countries as a framework for making monetary policy more coherent and transparent and for increasing the credibility of monetary policy. Despite the language, referring to inflation target as the primary objective of monetary policy, central bankers always make room for short-run stabilization objectives, particularly with respect to output and exchange rate. Inflation targeting, in most cases, reduces the role of intermediate targets, such as exchange rate or money growth rate.

Experience of other countries that have adopted inflation targeting as a monetary framework reveals that the success of the policy depends on not only the transparency of the operation but also on the budgetary discipline. Indeed, the central banks that have become more transparent, more independent, more coherent, and more accountable and more credible have been more successful.

The controversy among economists on the expenses of inflation targeting has attained particular attention during the past decades .While opponents believe that inflation targeting takes place at the expense of output shortfalls (Cechetti and Ehrmann 1999), proponents (Mishkin 2000, Jonas and Mishkin 2003) believe that inflation targeting promotes investment and economic growth. This paper tries to address the question of whether the performance of inflation targeting in Iran has been successful. Based on a  monetary model, using exogenous variables such as official exchange rate, budget deficit, foreign exchange obligation account, and balance of payments, the results suggest that the effects of inflation targeting on the real output is trivial, supporting the natural rate hypothesis.


Ball Laurence, and Niamh Sheridan, "Does Inflation Targeting Matter?" NBER, working paper 9577, March 2003.
Bernanke, B.S. and F.S. Mishkin," Inflation Targeting: A New Framework for Monetary Policy, Journal of Economic Perspectives, 1997.
Bernanke Ben S., Laubach, Thomas, Mishkin Fredric S. and Posen Adam S. " Inflation Targeting: Lessons from the International Experience. Princeton, NJ: Princeton University Press.
Bidabad, Bijan, General monetary equilibrium. Lap Lambert Academic Publishing, OmniScriptum GmbH & Co. KG, ISBN: 978-3-659-54045-5, Spring 2014.
Bidabad, Bijan, Parallel Exchange Market Control by Monetary Targeting and Complementary Policies. Monetary and Banking Research Academy, Central Bank of Iran, Tehran, Iran, 2007.
Bidabad, Bijan, Analysis of built models for appropriate monetary policy for economic stabilization in Iran, Parliament and Research, Journal of Research Center of Iran's Parliament, No. 9, 2nd year, pp. 59-95, Tehran, Iran, 1994.
Bidabad, Bijan, (2007) Triangular Causality and Controlling Parallel Exchange Market. Monetary and Banking Research Academy, Central Bank of Iran, Tehran, Iran.
Bidabad, Bijan, M.J. Mojarrad, The inflation targeting policy for Iran. Proceeding of the 6th conference of monetary and exchange rate policies, Monetary and Banking Research Academy, Central Bank of Iran, pp. 21-57, 1996. Some parts of it reprinted under the titles: "Price control by inflation targeting" and "Experience of some countries on inflation targeting policy"; Tazehaye Eghtesad, the monthly review of science, economic and banking, pp. 10-14. 22-27, no. 79, August 1999. Monetary and Banking Research Academy, Central Bank of Iran.
Cechetti S, and M. Ehrmann "Does Inflation Targeting Increase Output Volatility? An International Comparison of Policymakers preferences and Outcomes", Central Bank of Chile, working paper 69, April 2000. http://www.bcentral.c1/Estudios/DTBC/69/dtbc69.pdf
Cecchetti Stephen G. and Junhan Kim, "Inflation Targeting, Price-Path Targeting, and Output Variability", NBER working paper 9672, May 2003.
Christiano, Lawrence J., Martin Eichenbaum; Charles L. Evans, "Identification of the Effects of Monetary Policy Shocks," in M.I. Blejer et al. eds, Financial Factors in Economic Stabilization and Growth. New York, Cambridge University Press, 1996.
Ditmar R., Gavin, W.T, and F.E. kydland "What Do New-Keynesian Phillips Curves Imply for Price Level targeting, Review, Federal Reserve Bank of St. Louis 2000.
Estrella Arturo and Frederic S. Mishkin "Is There a Role for Monetary Aggregates in the Conduct of Monetary Policy", Journal of Monetary Economics, October 1997.
Feldstein, M. "The Costs and benefits of Price Stability", NBER working paper 6200, September 1997.
Friedman, Benjamin M., "The Use and Meaning of Words in Central Banking: Inflation Targeting, Credibility, and Transparency, NBER working paper 8972, June 2002.
Jonas. Jiri, and Frederic S. Mishkin "Inflation Targeting in Transition Countries: Experience and Prospects, NBER working paper 9667, April 2003.
King, M., "Challenges for Monetary Policy: New and Old", in New Challenges for Monetary Policy, Federal Reserve Bank of Kansas City, Kansas City, Missouri, 1999.
Komijani, A; Bijan Bidabad, Appropriate monetary policy for economic stabilization in Iran. Research project no. 111. Ministry of Finance and Economic Affairs, Deputy of Economic Affairs, Tehran, Iran, Phase I, 1992. Reprinted (book) by Deputy of Economic Affairs, Ministry of Finance and Economic Affairs, 1994. Reprinted in Economic Journal, Deputy of Economic Affairs, Ministry of Finance and Economic Affairs, vol. 4, pp. 2-14, vol. 5 pp. 2-12, vol. 6, pp. 2-9, vol. 7 pp. 2-7, 1996.
Komijani, A; Bijan Bidabad, Appropriate monetary and exchange rate policy for economic stabilization in Iran (emphasizing adjustment policies), Deputy of Economic Affairs, Ministry of Finance and Economic Affairs, Tehran, Iran, Phase II, 1993. Reprinted (book) by Deputy of Economic Affairs, Ministry of Finance and Economic Affairs, 1996.
Masson Paul, R., Savastano, Miguel A.; Sharma Sunil. "The Scope for Inflation Targeting in Developing Countries, IMF working paper 130, October 1997.
McCallum Bennett T., "Inflation Targeting in Canada, New Zealand, Sweden, The United Kingdom, And In General", NBER working paper 5579, May 1996.
McCallum Bennett T., "Specification of Policy Rules and performance Measure in Multicountry Simulation Studies, Journal of International Money and Finance, June 1994.
Mishkin Frederic S., "Inflation Targeting in Emerging Market Countries", American Economic Review, May 2000.
Mishkin Frederic S., "Issues in Inflation Targeting "in Price Stability and the Long-run Target for Monetary Policy, Bank of Canada,: Ottawa, Canada, 2001.
Mishkin Frederic S. "International Experiences with Different Monetary Regimes", Journal of Monetary Economics, 43, 1999.
Mishkin Frederic S., "International Experiences With different Monetary Policy Regimes," Journal of Monetary Economics, Vol 43, 1999.
Mishkin Frederic S, and Posen, Adam S. "Inflation Targeting: Lessons from Four Countries", Federal Reserve Bank of New York, Economic Policy Review, August 1997.
Mishkin Frederic S., and Klaus Schmidt-Hebbel "One Decade of Inflation Targeting in the World: What Do We Know and What Do We Need to Know", NBER working paper 8397, July 2001.
Svensson Lars, E.O., The Swedish Experience of an Inflation Target, NBER working paper 4985, January 1995
How to Cite
Bidabad, B., & Anaraki, N. K. (2019). Inflation Targeting in Iran. Asian Finance & Banking Review, 3(1), 74-88.
Original Articles/ Review Articles/ Case Reports/ Short Communications