Optimal Management of Oil Resources under the Bayesian Outoregressive Pattern

The purpose of this paper is to estimate the optimal savings rate out of oil revenues in Iran that minimizes production and inflation fluctuations. To this end, we design a Bayesian autoregressive model to evaluate the effect of oil revenues on inflation and production under four different savings scenarios. We estimate real economic production and inflation functions using actual data for the 1978-2014 period and applying the Cobb-Douglas production function and the hybrid Neo Keynesian Phillips Curve. We then estimate the production and inflation indicators under four different scenarios for savings rate applied by the national oil savings fund, assuming a Bayesian autoregressive pattern. The results indicate that the lowest fluctuation in inflation and production are respectively obtained with savings rates of 20% and 40%. If the government aims to minimize both production and inflation fluctuations, the 30% scenario would be appropriate.