The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper uses a common trends model to study how prices, the black market exchange rate, money, and real output have developed over a period covering both pre- and post-revolution Iranian data. It is shown that monetary shocks have significant short-run effects on output, but permanent effects on the price level and exchange rate, that is, expansionary monetary policy is not consistent with achieving low inflation or a stable unified exchange rate. The real shocks generate higher growth and lower inflation, suggesting that supply-side policies are consistent with the goals in the Islamic Republic of Iran’s second five-year development plan.