A New Keynesian DSGE Model with a Focus on the Housing Sector for Iran’s Economy

This paper aims to identify factors affecting the price and production fluctuations in Iran's economy with an emphasis on the housing sector. A New Keynesian dynamic stochastic general equilibrium model is designed for this purpose. This model of economy contains a representative household, a firm producing final goods in the housing sector, a firm producing final goods in a non-housing sector, a series of producers of intermediate goods in the housing sector and non-housing sectors, and a government monetary authority or an agent that is a combination of government and the central bank. The results show that a technological shock in non-housing sector has led to an increase in production and investment, a reduction of inflation in this sector, and an increase in household consumption expenditures. In the housing sector, too, the shock has increased production and investment. Given the relationship that has already existed between the housing and non- housing sector, the rise in the former has contributed to the production in the latter. A shock to the money growth rate, as a monetary policy, has boosted the inflation rate and the output growth rate in both sectors. Due to the higher elasticity of supply in the non-housing sector, the effect of the monetary shock on production in this sector is greater than that on the housing sector. Also, a shock in the government spending has increased production and inflation in both sectors and this impact on the price indices in both sectors is longer lasting than on production.