The Role of Productivity, Monetary Shocks and Non-Traded Goods on Exchange Shocks in Iran (by using of a DSGE model approach )

Document Type : Research Article

Authors

1 Professor of Economics, Shahid Bahonar University of Kerman

2 PhD student in Economics, Shahid Bahonar University of Kerman

Abstract

This paper has investigated the effect of share non-traded goods prices on real exchange rate fluctuations with two economic characteristics, such as openness and price stickiness by using of a DSGE model. The main characteristics of this model with other patterns is that both sectors are considered to be tradeable and non-trade goods. Three scenarios are designed for this purpose. The impact has been investigated a 3% and 5% shock on productivity, a 10% monetary shock, and a combination of a 3% and 10% shock in productivity and money respectively. The results indicate that productivity shocks have led to a decline in real exchange rates due to the relative price fluctuations of non-traded goods. The results of the second scenario indicate that monetary shocks increase the real exchange rate by changing relative price of traded goods. In the third scenario, monetary and productivity shocks have reduced real exchange rates. The results of the scenarios for this model show that changes in the relative price between traded and non-traded goods are the main channel through which productivity shocks are transmitted to the real exchange rate. Therefore the economy’s characteristics have a significant effect on the transmission mechanism and the overall volatility of the real exchange rate in response to both types of shocks. The economy’s characteristics have a significant effect on the transmission mechanism and the overall volatility of the real exchange rate in response to both types of shocks.

Keywords

References

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Journal of Applied Economics Studies in Iran
Volume 9, Issue 34
July 2020
Pages 191-213

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