A Study on the Change in the Share of Factors Influencing on the Volatility of GDP in Iran: An Application of DSGE Model

Document Type : Scientific paper

Authors

1 PhD student, Shiraz University, Shiraz, Iran

2 Associate professor, Department of Economics, Shiraz University, Shiraz, Iran

3 Associate professor, Shiraz University, Shiraz, Iran

4 Associate professor, department of Economics, Shiraz University, Shiraz, Iran

Abstract

This paper studied the impact of the most important factors affecting on volatility of GDP in Iran by using Dynamic Stochastic General Equilibrium (DSGE). Furthermore, it is important to understand the contribution of each of the factors to create volatility in GDP. To this end, we introduced institutional quality in production function. In our model, oil price shock is assumed to affect macroeconomics variables through affecting on productivity. The paper applied the model in Iran economy for the period of 1989-2014. The results indicated that one structural break had taken place in GDP in 2007:3 and Gross domestic product volatility has increased in the period after the structural break. The reason for this structural break can be found in the rise in oil prices that began in 2004 and continued for several consecutive years.  We also found that the share of factors that affect volatility in GDP has changed after structural break. The variance decomposition indicates that volatility in GDP is most affected by the oil price and the monetary policy shocks. Besides, their share increases after the break point. The share of oil price shocks before the structural break was about 28 percent, but the share rose to 35 percent after the structural break.

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References

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Macroeconomics Research Letter
Volume 13, Issue 25
December 2018
Pages 13-37

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History

  • Receive Date: 01 January 1970
  • Accept Date: 01 January 1970

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