Studying how monetary and fiscal policy affects specific macroeconomic variables, especially in the industrial sector, using an IO-DSGE model.

Authors
Ghasem Palouj 1
fakhreddin fakhrhosseini 2
1 .
2 slamic Azad University Tonekabon Branch, Tonekabon
Abstract
This study explores how monetary and fiscal policies influence certain macroeconomic variables through a multi-sector stochastic dynamic general equilibrium (DSGE) model that includes input-output (IO) analysis. The focus is on the industrial sector, taking into account the specific conditions for Iran. The research uses quarterly data from Spring 2006 to Spring 2023 and references the 2016 input-output table provided by the Central Bank. In the nonlinear model, the original 89 activities from the input-output table have been simplified to 9, which includes the industrial sector and eight other sectors. Model parameters are estimated based on previous studies of the Iranian economy and data from the input-output table. The model's effectiveness is assessed by comparing simulation results with real-world data, which shows a strong correlation. The simulations indicate that increases in the money supply result in only a small rise in both total and industrial output. This leads to a slight decrease in total employment, while employment in the industrial sector experiences a minor increase. Similarly, increases in government spending show tiny improvements in overall and industrial output, accompanied by a slight drop in total employment and a small rise in the industrial sector. The findings suggest that the effects of monetary and fiscal policy shocks on output and employment, when accounting for input-output relationships and dividing the economy into nine sectors, better reflect the realities of the Iranian economy. Given the minimal influence of these policies on boosting production and economic growth, it is essential for them to be targeted and supported by additional measures and strategies.
Keywords
Multi-Sector Stochastic Dynamic General Equilibrium
Monetary and Fiscal Policy
Industrial Sector
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