Planning and Budgeting

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Considering the results of their previous research in 2000, when the shock impacts of production, price levels and money on Iran’s macroeconomic variables such as growth national product (GDP) and price levels were studied, the authors began examining the subject in the open economy. Hence, they entered a new variable i.e. foreign exchange into the model. Having expounded on the model, the authors studied the results by means of impulse reaction function (IRF) and variance decomposition (VD). It is noteworthy that bringing the foreign exchange into the new model affects the situation of some variables in the previous one. In general, they hold that oil-less GDP changes variance in the four-variable model is most highly affected by the production growth shocks. The shocks related to foreign exchange, money and price levels growth lie in the next stage. Meanwhile, price level changes variance is mostly under the influence of shocks in inflation, money, production as well as foreign exchange growth. The study shows that positive production shock leads to real decrease in foreign exchange rate. Additionally, real foreign exchange rate shocks in turn lead to cuts in oil-less gross product. In the end, monetary shocks can lead to partial production increase but this achievement is possible only in the framework of admitting inflation. Regarding monetary shocks on the real foreign exchange rate, the authors have come to the conclusion that this type of shocks rises the rate.

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