Abstract:
This paper examines monetary and fiscal policy through the estimation of a New-Keynesian dynamic general equilibrium model for Iran’s economy. In this New-Keynesian dynamic general equilibrium model, the consumers encounter the liquidity constraint and the firms face sticky prices, while they are changing them. In the model presented, a role is considered for both government spending and taxation, besides the monetary rule. Then, the model is estimated using Iran's data over the period of 2002-2017, through the method of generalized moments which leads into valuable insight. The results indicate that aggregate demand reacts to changes in interest rates. When inflation occurs, regardless of its source, it is persistent and inertia.The monetary policy has a forward-looking behavior. The output gap with a lag has a negative effect on government spending and the short-term impact of the output gap on government spending is smaller than its impact on taxation (Tax responses to the output gap are stronger and positive).
Machine summary:
[10] based on the New Keynesian model using Bayesian method investigate the interaction between fiscal and monetary policies in order to determine the degree of fiscal policies’ dominance in Iran’s economy with seasonal data over the period of 1959-1999.
Zarra Nezhad and Anvari [11] determined the optimal monetary and fiscal policies in Iran’s economy using the dynamic stochastic equilibrium model and the New Keynesian approach.
Eslamloueyan and Yazdanpanah [14] with a structural vector of autoregressive model, Using seasonal data over the period of 2006-2015, concluded that there is a risk-taking channel in Iran's banking system and the central bank can consider this risk-taking channel into its loss function and design the optimal monetary policy based on that can help to gain financial stability and strengthen the banking system and reduce the negative impacts of this channel on macroeconomic variables.
Izadkhasti in [15] investigated the impacts of monetary policy in the framework of dynamic general equilibrium model on inflation and welfare based on money that the theoretical results obtained from solving the money pattern in the utility function in Iran’s economy.
Data This paper estimates the new Keynesian model, along with the monetary and fiscal policy rules, including equations (19) and (24) - (27), based on seasonal data of Iran, over the period of 2000Q1-2017Q4.