Applying the General Equilibrium Model to Create a Scenario for the Adoption of a Suitable Monetary Policy in Economic Shocks Caused by Social Crises in Iran (A Case Study of the Outbreak of the Coronavirus Disease)

Document Type : Scientific paper

Authors

1 PhD student in Economics, Department of Economics and Management, Shiraz Branch, Islamic Azad University, Shiraz, Iran

2 Assistant Professor of Economics, School of Economics and Management, Shiraz Branch, Islamic Azad University, Shiraz, Iran.

3 Assistant Professor of Economics, School of Economics and Management, Shiraz Branch, Islamic Azad University, Shiraz, Iran

Abstract

Iran's economy faced the problem of Coronavirus when macroeconomic variables did not show a suitable situation due to economic sanctions. Therefore, in this study, the optimal monetary policy was determined to reduce the negative effects of the shock caused by the outbreak of Coronavirus on GDP, total welfare, and employment in Iran using a social accounting matrix (SAM) and a new model of recursive dynamic computable general equilibrium (RDCGE). Results showed that the adoption of an expansionary monetary policy equivalent to a 5% reduction in the legal reserve rate reduces the negative effects of shock caused by the outbreak of Coronavirus on investigated variables compared to not adopting monetary policy. Moreover, adopting an expansionary monetary policy equivalent to a 10% reduction in the legal reserve rate reduces the negative effects of shock caused by the outbreak of the Coronavirus on investigated variables more than adopting a monetary policy equivalent to a 5% reduction in the legal reserve rate. Additionally, adopting an expansionary monetary policy equivalent to a 20% reduction in the legal reserve rate reduces the negative effects of shock caused by the outbreak of Coronavirus on investigated variables more than adopting a monetary policy equivalent to a 10% reduction in the legal reserve rate. Based on this, it is suggested that the monetary authorities adopt an expansionary monetary policy under similar conditions so that commercial banks can provide facilities to households (in order to stimulate total demand and prevent the reduction of gross domestic production) and producers (in order not to lay off or adjust the workforce) to reduce the welfare of the whole society.

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References

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Macroeconomics Research Letter
Volume 17, Issue 33
April 2022
Pages 87-112

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History

  • Receive Date: 10 July 2023
  • Revise Date: 16 August 2023
  • Accept Date: 22 August 2023

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