DESIGNING OPTIMUM MONETARY AND FISCAL POLICIES OF IRAN UNDER UNCERTAINTY IN MICRO-FOUNDED MACROECONOMIC MODEL

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ZARRA NEZHAD MANSOUR; ANVARI EBRAHIM

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Journal: Monetary and Financial Economics Year:2012 | Volume:19 | Issue:3 Page(s): 1-27

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Title

DESIGNING OPTIMUM MONETARY AND FISCAL POLICIES OF IRAN UNDER UNCERTAINTY IN MICRO-FOUNDED MACROECONOMIC MODEL

Author(s)

ZARRA NEZHAD MANSOUR | ANVARI EBRAHIM | Issue Writer Certificate

Keywords

UNCERTAINTYQ2

PARAMETER UNCERTAINTYQ2

MONETARY AND FISCAL POLICIESQ2

DSGE MODELQ1

OPTIMUM CONTROLQ2

WELFARE COST FUNCTIONQ2

Abstract

In recent decades adopting unreasonable MONETARY AND FISCAL POLICIES and UNCERTAINTY in model-making and analysis of data, has become unsatisfactory in macro goals. In a new Keynesian dynamic stochastic general equilibrium (DSGE) model to study Iran economy, UNCERTAINTY is modeled as UNCERTAINTY about the true structural parameters that characterize the economy. In particular, the policymaker does not know the true numerical values nor the statistical distribution of the fiscal and monetary policy. The model considers the dependence of Iran economy to oil export. Oil sector and oil export revenues have been modeled as a separate sector and one of the government budget resources, respectively. Like in other New Keynesian DSGE MODEL, firms face nominal rigidities and the intermediate-good sector is monopolistically competitive. Impulse response function of shocks show that non-oil output increases in response to productivity, oil revenues, money growth rate and government expenditure shocks. The finding shown that a policymaker that follows a control approach under UNCERTAINTY sets interest rates less aggressively to react against fluctuations in inflation or the output gap than in the case of absence of UNCERTAINTY. Model UNCERTAINTY has the potential to change importantly how monetary and fiscal policy should be conducted, making it an issue that can not be ignore. In main result, policy performance can be improved if the discretionary policymaker implements an optimum policy in the model. In effect, a fear of model UNCERTAINTY can act similarly to a commitment mechanism. When there is UNCERTAINTY about the persistence of inflation, it is optimal for policy makers to respond more aggressively to shocks than if the parameter were known with certainty, since the avoid bad outcomes in the future.

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APA: Copy

ZARRA NEZHAD, MANSOUR, & ANVARI, EBRAHIM. (2012). DESIGNING OPTIMUM MONETARY AND FISCAL POLICIES OF IRAN UNDER UNCERTAINTY IN MICRO-FOUNDED MACROECONOMIC MODEL. JOURNAL OF MONETARY & FINANCIAL ECONOMICS, 19(3), 1-27. SID. https://sid.ir/paper/394408/en

Vancouver: Copy

ZARRA NEZHAD MANSOUR, ANVARI EBRAHIM. DESIGNING OPTIMUM MONETARY AND FISCAL POLICIES OF IRAN UNDER UNCERTAINTY IN MICRO-FOUNDED MACROECONOMIC MODEL. JOURNAL OF MONETARY & FINANCIAL ECONOMICS[Internet]. 2012;19(3):1-27. Available from: https://sid.ir/paper/394408/en

IEEE: Copy

MANSOUR ZARRA NEZHAD, and EBRAHIM ANVARI, “DESIGNING OPTIMUM MONETARY AND FISCAL POLICIES OF IRAN UNDER UNCERTAINTY IN MICRO-FOUNDED MACROECONOMIC MODEL,” JOURNAL OF MONETARY & FINANCIAL ECONOMICS, vol. 19, no. 3, pp. 1–27, 2012, [Online]. Available: https://sid.ir/paper/394408/en

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