Determining Optimal Scenario to Reduce the Effects of Removing Discounted Currency on Welfare and Income of Production Factors; RDCGE General Equilibrium Model Approach

Document Type : Scientific paper

Author

Assistance Professor of Agricultural Economics, Agricultural Planning, Economic and Rural Development Research Institute (APERDRI), Tehran, Iran

Abstract

According to the data of the consumer price index of the Iran Statistics Center, after implementing the policy of removing discounted currency from basic goods (popularization of subsidies), the average point-to-point inflation (compared to the same month of the previous year) of the major food group has increased by 86.1 percent from May 2022 to November 2023. Now, the main question is, how will implementing the mentioned policy reduce the negative effects on the income of production and welfare factors? Therefore, in the current research, the results of the simulation of 18 scenarios were examined in the form of the type of removal of preferred currency from essential goods, the type of protective compensation, and the level of protective coverage of income deciles on the welfare and income of production factors. For this purpose, the research data was collected from the social accounting matrix and input-output table of the Central Bank of Iran. A recursive dynamic computable general equilibrium model (RDCGE) was also used to analyze the data. The results showed that among the examined scenarios, the best scenario is removing the preferred currency within five years, as well as cash compensation and protection coverage for the low- and middle-income deciles. In this sense, if the government removes the preferred currency gradually over five years and supports the low- and middle-income deciles in cash, the negative effects caused by the shock on the income of the factors of production and welfare will be neutralized and then become positive.

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References

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Macroeconomics Research Letter
Volume 18, Issue 37
December 2023
Pages 7-31

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History

  • Receive Date: 07 November 2023
  • Revise Date: 31 December 2023
  • Accept Date: 02 January 2024

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