The Effects of Energy Price Reform on Iranian Economy: Dynamic Stochastic General Equilibrium Approach (DSGE)

The aim of this study is to design a dynamic stochastic general equilibrium model with nominal and real rigidities to study the effects of energy price reform on macroeconomic in Iran. We tried to consider important mechanism of energy prices on the macroeconomic. In this regard, energy consumption in the household bundle is included as a separate commodity. Also, energy was considered as an input in the production function, so that, the mechanisms impact on both the supply and demand to be considered. Impulse response functions show that, an energy price shock (one standard deviation) led to decrease in production, lower private consumption and investment returns. Also, an oil price shock increases production, inflation, consumption and investment returns.