Evaluation of Energy Price Shock Effect on Macroeconomic Variables in Iran: Introducing a Dynamic Stochastic General Equilibrium Model

The Dynamic Stochastic General Equilibrium (DSGE) model has been a favored analytical to due to its microeconomic foundation, its dynamic economic approach, as well as utilization stochastic process. The main goal of this paper is to evaluate the effects of an energy price shock on GDP, Investment, labour force supply and inflation in Iran introducing a DSGE model. This model is limited to two sectors; households and firms, in which the firms are divided into final goods producing firms and energy supplying firms. The results indicate that a shock initiated from the energy price is likely to lead to a deviation in production, investment, labour supply, and inflation from their long-run trends, raising inflation while reducing the other variables.