Evaluating and Comparing the Welfare Performance of Different Regimes of Policy Making in Iran's Macroeconomics

In this study, we used a Dynamic Stochastic General Equilibrium Model and then we evaluated and compared the welfare performance of the four macroeconomic policy-making regimes- standard policy regime, generalized policy regime, the macro-prudential policy-making regime, and combined monetary and macro-prudential Policy regime. For this purpose, we used the data of Iran's economy during the period 1990: 1 to 2014: 4. The results of examining the optimal policy coefficients calculated using optimal simple rule (OSR), showed that the optimal policy is the policy in which policymaker have more importance to controlling and stabilizing the inflation so that achieving output stability can be in the next priority for the policymaker. Also, the macro-prudential policy-making regime would lead to a significant reduction in inflation and output volatilities and this policy-making regime would improve welfare status in Iran economy. In addition, the welfare performance of the combined monetary and macro-prudential Policy regime, generalized policy regime, and standard policy regime are ranked in second, third and fourth place, respectively. In the following, we have compared the welfare performance of macro-prudential policy regime and the combined monetary and macro-prudential Policy regime in a situation where the financial shock was the only shock to the economy. The results showed that under these conditions, it is optimal for policymakers to use the macro-prudential tool aggressively.