A Simulation Analysis of Forecast-Based Targeting for Inflation and Unemployment in Iran

Document Type : Original Article

Authors

1 PhD Student in Economics, Shiraz University, Shiraz, Iran

2 Professor of, Department of Economics, Shiraz University, Shiraz, Iran

3 Associate Professor, Department of Economics, Shiraz University, Shiraz, Iran

10.22075/jem.2025.37930.2012

Abstract

A well-defined monetary policy strategy provides the central bank with a coherent framework and the essential principles for monetary and banking decisions. Designing such a strategy—and communicating it effectively—plays a critical role in strengthening policymakers’ confidence in monetary policy, enhancing its stability, and reinforcing the credibility of monetary authorities.
This paper first analyzes the monetary policy strategies adopted in Iran over the period 1961–2021 (1340–1400 in the Iranian calendar). It then examines, within a forecast-targeting framework, the simultaneous targeting of inflation and unemployment for the Iranian economy in a simulated environment. For this purpose, the study uses long-term development-plan averages as reference targets: a 10 percent inflation rate and a 6 percent natural rate of unemployment (NAIRU), simulated over sixty-one years.
The findings suggest that if a forecast-targeting strategy had been adopted from 1961 onward, inflation and unemployment would have fluctuated in a more balanced manner around their constant targets, leading to improved overall economic performance in Iran.

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