Investigation of Markov Dynamic General Equilibrium Marking Model (MS-DSGE) in order to Develop Iran's Monetary-Economic System

Subject Areas : Finance

Mohammad  Ghasemi ¹ (Ph. D. candidate. (Economics), Faculty of Social Sciences, Razi University, Kermanshah, Iran)
Kiomars  Soheili ² (Associate Professor of Economics, Razi University, Kermanshah, Iran)
Shahram  Fattahi ³ (Associate Professor of Economics, Razi University, Kermanshah, Iran)

Received: 2022-10-22 Accepted : 2022-12-29 Published : 2023-04-01

Keywords: Macroeconomic Dynamics, Economic Impulses, Stochastic Dynamic General Equilibrium Model - Markov Switching (MS-DSGE),

Abstract :

Iran has experienced major structural and economic changes over the past four decades. In the major experimental literature, researchers believe that these changes have manifested themselves as changes in the dynamics of macroeconomic variables, so that a number of articles have focused on documenting these changes. Understanding what lies behind it and the consequences of these changes is clearly important for monetary policy. This study empirically examines how the behavior of monetary policy in Iran has changed in response to various structural shocks, which is done using the Markov switching model of dynamic random equilibrium. In this study, the Markov Stochastic Dynamic General Equilibrium Model (MS-DSGE) is estimated, which causes changes in the coefficients of the monetary policy law as well as shock fluctuations with Iranian data from 1350 to 1396. We find that regime change, both in monetary policy legislation and in shock fluctuations, is a fundamental adjustment in improving the fit of the model. Our results show that structural shock fluctuations have also changed over time. Hence, the highest instability impulse of real output is due to the monetary policy index impulse and the least impact is due to the imposition of financial liberalization. Among all the factors, the greatest impact is due to the impulse of revolution and war. The least impact belongs to the shock of oil revenues on the shocks of the monetary policy index with coefficient.

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