Non-Accelerating Inflation Rate Of Unemployment (NAIRU) In Iran

Abstract

The recent literature on monetary policy has raised many questions about the trade-off between inflation and unemployment and the assumption of a constant NAIRU. This paper tries to investigate the effects of monetary policy on NAIRU in Iran. We implement a structural Vector Auto Regression (VAR) model to measure the effects of monetary policy in shaping NAIRU in Iran’s economy. Our results suggest that monetary policy has negligible effects on NAIRU and the unemployment rate is mainly affected by labor market imperfections, such as wage rigidity, labor law, regulations, and institutions that do not match with today’s world economy.