Document Type : Research Paper

Authors

• rana abbasgholi nezhad asbaghi ¹
• Hossein Samsami Mazrae Akhoond ²

¹ Ph.D. Candidate in Economics, Faculty of Economics and Political Sciences, Shahid Beheshti University, Tehran, Iran

² Department of Economics , Faculty of Economics and Political Sciences , Shahid Beheshti University

Abstract

Recently, some monetary policymakers have attributed the high inflation in the Iranian economy solely to the independence of the central bank, arguing that to reduce the inflation rate, the central bank must operate independently. However, empirical studies indicate that the independence of the central bank faces structural challenges due to the Endogenous money within Iran's economy. Therefore, the purpose of this article is to identify the components of the requirements of central bank Independence, with an emphasis on the government structure in Iran's economy. To achieve this, a review of existing literature on central bank independence was conducted, and the grounded theory approach was employed to reach theoretical saturation regarding the relevant categories related to the issue of central bank independence in Iran's economy. Subsequently, using the Bayesian model averaging method and analyzing 21 variables, the study identified key factors that define the requirements for central bank independence in Iran. These factors include the deviation of the effective exchange rate from the appropriate exchange rate, the government budget deficit, oil revenues, and the government effectiveness index. Additionally, the results indicate that merely increasing the indicators of the central bank independence, in the context of variables that contribute to the endogeneity of money under the current conditions of the Iranian economy, has a weak and fragile effect. Therefore, it is essential to implement structural reforms addressing each of these critical variables before discussions on independence can be effectively undertaken.

Keywords

• Central Bank Independence
• Government Structure
• Endogenous money
• Grounded Theory
• Bayesian Model Averaging

Main Subjects

• Monetary economy