ECONOMIC STRATEGY
Year:2012 | Volume:1 | Issue:1|Papers Count:7

The main goal of this paper is to study the impact of deviation in foreign exchange policies on indices used to measure state support for the agriculture sector (PSE, MPs, CSE, GSSE, and TSE) during 1989-2008 period. To estimate deviation in foreign exchange rate, balanced foreign exchange rate was first studied using vector error correction (VEC) model, and the real foreign exchange rate was also calculated using purchasing power parity (PPP) rate. Then, the impact of deviation in real foreign exchange rate from the balanced rate on the amount of support for agriculture sector was studied for three time periods: 1989-1991 (first period), 1992-2001 (second period), and 2002-2008 (third period). Findings show that firstly, the real foreign exchange rate has deviated from the balanced rate in the studied period and, secondly, that deviation has affected support indices for the agriculture sector.Findings also show that during the first period, deviation of the real foreign exchange rate from the balanced rate has had the greatest effect compared to other periods on the total support estimate (TSE), so that, during that period, state support for the sector has averaged 2,770 billion rials. In the second period and following changes in the government’s foreign exchange policy from foreign exchange rate stabilization to a multiple rate system, domestic support for agriculture sector decreased by 73 billion rials as a result of foreign exchange policy. In the third period, after foreign exchange policies changed course from a multiple rate system to rate stabilization and floating the foreign exchange rate, total support for agriculture sector increased to 921 billion rials. Based on the research findings, a balanced foreign exchange rate approach can increase international competitiveness of the Iranian agriculture sector.

Conducting research projects in line with the country’s macroeconomic priorities will accelerate scientific progress of the country. The present paper will first test the hypothesis that “macroeconomic studies in Iran are not compatible with research priorities of the Iranian economy.” To test the hypothesis, the status quo is compared to the optimal situation. The status quo is determined by analyzing the content of scientific and research papers on Iran’s macroeconomy, written in 2000-2007 period, while the optimal situation is derived from content analysis of five analytical books on the Iranian economy.The hypothesis survived the test. Therefore, one may claim that Iran’s macroeconomic researches have not been compatible with research priorities of the Iranian economy. The most common subjects discussed in Iranian economic analytical books include: distribution and allocation of national revenues (8.6 percent), government’s expenses (7.8 percent), national production (7.7 percent), and inflation (7.2 percent). These four subjects account for about one-third of all subjects covered in those books. The most common issues taken into account in macroeconomic researches include: economic growth (10.4 percent), inflation (9.8 percent), foreign exchange rate system (7.8 percent), and investment (6.4 percent). More than one-third of macroeconomic research papers focus on these four topics.According to Iran’s economic experts, as reflected in their books, more research is needed on such macroeconomic subjects as monetary policy and central bank, macroeconomic aspects of oil and gas industries, and macroeconomic aspects of the government’s economic activities.

It is important to identify demand for money in a country as well as combination of the money saved by people and how to substitute them in order to formulate strategic monetary policies. It is very important to decision-makers to know how significant their decisions will be. Therefore, before making a decision, they must measure the impact of those decisions according to people’s behavior and offer the best proposal.This paper uses two flexible function forms to analyze demand for money: Almost Ideal Demand System (AIDS), and Leontief Model. It is necessary to select a suitable model to represent people’s behavioral model. Past models estimated demand for money in Iran without attention to functional forms of demand and did not consider weak substitution among monetary components of the system.In this study, we use AIDS and Leontief Model to test “weak monetary substitution component” theory. Findings uphold the hypothesis of the research. As for people’s sensitivity toward increased revenues, findings show traction of three components has been on the fall in recent years.Estimation of demand for money in Iran according to functional forms is done using monthly data series pertaining to 1995-2007. Finally, policy recommendations are provided on the basis of estimated parameters and various forms of traction (income, price, and Murishima Elasticities of Substitution).

A strategic question on monetary policy is whether monetary policy should follow recognized and predetermined rules, or be left to discretion of policymakers. This paper studies the viewpoints of various economists before comparing regulation vs. discretion as a basis for monetary policies. Finally, a suitable policy strategy which is accepted by most economists and policymakers is introduced. In view of results and given economic conditions of Iran, a combination of regulation and discretion is recommended to guide Iran’s monetary policy.

Private sector consumption is among macroeconomic variables affecting economic structure of countries. It is influenced by policies of government and the central bank, on the one hand, and consumer habits of people, on the other hand. Most empirical studies on private sector consumption have focused on income and disposable income. This paper analyzes the impact of financial assets on private sector consumption model. Econometric analysis is done using Ordinary Least Squares (OLS) relying on short-term consumption function and seasonal data related to period between 1996:1 and 2010:4. Findings show that marginal propensity to consume (MPC) for disposable income is about 0.66 while MPC for financial assets is about 0.16. These findings conform to economic structure of developing countries. Therefore, monetary and financial policies should be formulated in such a way as to reduce consumption by affecting financial assets and disposable income.

The close relationship between energy and other international issues during the past two centuries has given birth to special international paradigms and has created undeniable connection between security of countries and international issues. Therefore, energy and national security are interrelated. At the end of the 20th century and the beginning of the 21st century, a new paradigm has been in the offing as a result of technological and environmental developments as well as the availability of fossil fuel resources and global demand. In the meantime, increasing share of natural gas in the world’s energy basket from 23.7 percent in 2011 to 28 percent in 2030 indicates increasing importance of natural gas.The natural gas paradigm is based on diminishing importance of crude oil which has faced countries with a choice. Having the world’s second biggest natural gas reserves Iran stands on high grounds in this regard. In terms of natural gas production, the Islamic Republic of Iran has a creditable standing in the world, but due to excessive domestic production and wasteful habits in all industrial, household and business sectors, a great deal of the total daily production of over 500 million cubic meters of natural gas in the country is squandered as a result of high energy intensity. Therefore, such a great capacity has not been translated into suitable political and economic power. Studies carried out through this research show that although huge investments have been made in development of the natural gas industry by major rival countries of Iran, that is, Russia and Qatar, the Islamic Republic has not done much for taking optimal advantage of this economic advantage.A review of Russia’s performance shows that following the collapse of the Soviet Union and establishment of the new managerial system in that country and due to Mr. Putin’s initiatives, the country has been able to play a prominent part in supplying energy to Europe and establishing a link between Russia’s economy and security and that of Europe.On the other hand, Qatar is developing its North Dome gas field, which is shared with Iran’s South Pars gas field, in order to emerge as the main economic hub in the southern part of the Persian Gulf. Export of liquefied natural gas (LNG) is currently playing a prominent role in economy and security of Qatar. The country has been also able to boost its regional importance by exporting natural gas to neighboring countries using Dolphin pipeline.

As water resources constantly shrink and due to climate changes in the past few decades and increased demand for water in industrial, household and environmental sectors, water consumption in agriculture sector as the main consumer of water resources, should be controlled in favor of other sectors. Obviously, controlling this process needs special components. Water productivity index is one of those components, which has come to the fore in national plans during the past years. Water productivity in agriculture sector describes the value of a unit of water in terms of economic income, social conditions, as well as the amount of calories and proteins that it produces. When water yield in terms of evaporation from plants is the sole performance index, more attention is paid to efficiency of water consumption. Productivity can be estimated in terms of crops, livestock, forests, culture farms, production units, farms, irrigation system, irrigation network, basins, and natural areas (such as pastures and green spaces). Increased productivity can directly and indirectly improve living standards of local communities by increasing production per unit of consumed water. At present, water productivity for agriculture sector in Iran is about 0.88 kg for every cubic meters of water which should at least increase to 2 according to the 20-Year Perspective Plan. Differences in water productivity for different crops in different Iranian provinces and its comparison with other countries with similar climatic conditions reveals more potentials for increasing water productivity in agriculture sector. Several policies can help to increase productivity which include: 1) changing the policy of increasing land productivity index in favor of water productivity, 2) development of research activities on agricultural crops which need less water, have shorter growth period, and are more resistant to environment tensions such as dry spells, 3) development of improved farming methods such as “no tillage” and “minimum tillage” methods, promoting irrigation management in early growth stages (by reducing water consumption), seeding raw crops in greenhouse and using less water, 4) taking advantage of virtual water index, and 5) improving irrigation management.