The Effect of Energy Price Shocks on Iran's Oil-centric Economy base on New-Keynesian Modeling Method and Using Dynamic Stochastic General Equilibrium Equations

Extensive subsidies and excessive energy consumption have necessitated the need to reform consumption pattern and price. The present study seeks to investigate the effects of energy carrier price reform on important macroeconomic variables and for this purpose, a small open New- Keynesian DSGE model has been calibrated and simulated for Iran. The results of impulse response functions analysis show that the detrimental effects on household consumption, enterprise investment, non-oil production and total output as a result of positive price shocks in energy carriers can negatively impact Iran's economy for at least 30 periods. A accelerated decline in investment over the course of nine periods and a return to a stable level over 25 periods can also be a crisis. Therefore, the need for complementary policies to encourage investment and counteract price increases, as well as the role of the government in efficient subsidies redistribution and infrastructure investment, can be extremely important.