Calculation of Optimal Monetary Policy by Considering the Current Account and Exchange Rate Fluctuations (Bayesian Approach)

This research is to design a New Keynesian DSGE model in an open economy which could be capable of Calculating optimal monetary policy rule in the face of different shocks (oil revenue and technological shocks), according to the dynamics of the current account and exchange rate fluctuations. In this study, after designing the model, Current account is derived and the model coefficients are calculated through the Bayesian approach. Then the three principals are introduced to the model and dynamism of the variables is investigated in the form of impulse response functions. The optimal policy rule is the policy, which minimizes the welfare loss function in the face of every shock. The results show that the optimal policy rule in the face of oil revenue shock and technological shock will be inflation and exchange rate rule and inflation targeting rule respectively. Finally, the immediate response (In the initial moments after entering shock) of the current account and the trade balance increased in the face of oil shock with the use of the rule of inflation and exchange rate comparing to the other rules.