The Analysis of Oil Shocks Effects on Residential Investment Dynamic Stochastic General Equilibrium Model On Real Business Cycles Theory

This study tries to examine the way housing residential investment in Iran's urban area is influenced by the shocks of oil revenues, and for that, time series data spanning the period 1991:1-2007:4 are deployed in a Dynamic Stochastic General Equilibrium (DSGE) model including households, firms producing new residential houses, and the production of other economic firms as well as oil sector. The model is based on some simplify assumptions suitable to Iran's economy characteristics as: Iran as a small economy regarding capital flows, Oil Exports and goods imports and no price stickiness in housing sector. Moreover, the allocation of resources in the economy is determined by a central planning. The Model's solution and simulation is processed through using DYNARE as a subset of MATLAB software package. The results showed that the incidence of extreme volatility in the short behavior of housing residential investment in Iran's urban area, due to shocks of oil revenues, shocks was not Persistent and quickly disappeared. This implies that Iran's economy is suffering from Dutch Disease.