Stochastic Shocks and Oil Revenue Management in Iran; A Dynamic Stochastic General Equilibrium Approach

The main objective of this study is to evaluate the impact of oil revenue, productivity and money growth rate shocks on macroeconomic variables, in the context of a DSGE model with the consideration of features such as big size of government activities in the economy, inefficiency of government investment, the need to invest in development of infrastructures, and existence of “National Development Fund” (NDF) to support private sector investment.
The research findings based on RBC model, show that oil revenue shock has increased the consumption, government spending (both current and capital expenditures) and has decreased inflation in short-run; although because the oil shock is transferred to demand side, this situation leads to increase of inflation in medium-term. Our results show that when the oil revenue increases, the resources of NDF and consequently the share of credit granted to private sector will be raised and this can promote private sector production. In addition, because of the structure of Iranian economy, the increase in oil revenue has little effect on growth and development of production in non-oil producing sectors. Furthermore, the research findings show that when the inefficiency of public investments decreases, the investment of oil revenues has more positive effects on private sector production as a crowding-in effect phenomenon. Likewise, each of productivity and monetary shocks in the model has the same results as the theoretical expectations.