Designing a dynamic stochastic general equilibrium model of open economy to examine the impact of oil price shocks on macroeconomic variables

Khiabani, Naser; Amiri, Hossein

doi:10.22055/jqe.2012.12288

Designing a dynamic stochastic general equilibrium model of open economy to examine the impact of oil price shocks on macroeconomic variables

https://doi.org/10.22055/jqe.2012.12288

Volume 9, Issue 3 - Serial Number 3

Vol. 9, No. 3, Autumn 2012

Autumn 2012

Pages 25-59

Quarterly Journal of Quantitative Economics (JQE)

Document Type : Research Paper

Authors

naser khiabani

hossein Amiri

Abstract

In this paper we will investigate the impact of price and production shocks of crude oil on macroeconomic variables in Iran and in the form of an open economy DSGE model. To this end, the transmission channels of oil shocks have been specified in accordance with the structure of the Iran economy. Simulation results of the model show that oil shocks has negative effect on output, investment and capital stock, but inflation, consumption and marginal cost increases.
On the other hand oil shocks have a positive effect on government spending and the money supply.
These results confirm the hypothesis of the resource curse in the economy of Iran and show that oil shocks played a key role in shaping monetary and fiscal policies and inflation
Hence in order to avoid of abuse consequences resulting from the oil shocks is suggested that continues supervision on the exchange reserve account and national development fund done and mechanisms performed to reduce the dominance of the government on central bank and maintaining authenticity of central bank in doing the two main tasks of this organization is to keep the value of the national currency and control inflation.

Keywords

Oil price shock

Oil Revenues

DSGE Model of open economy

Iran Economy

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