Simultaneous control of budget deficit and trading deficits in Iran's economy with the goal of economic growth

In this study we used "optimal control theory" to evaluate the optimum path of monetary and fiscal policy in Iran's economy during the period of between 1963 until 2006. So, with regard to dynamic behavior of economic variables in country, at first we have defined simultaneous System of equilibrium between both real and money sector of economy in the framework New Keynesian model (IS- LM); and were estimated by three stage least squares method. Then we have evaluated the optimum path of government consumer expenditure (fiscal tool) and money stock (monetary tool) with using the optimal control theory in four runs. The obtained results of these four runs are representative of this point that the obtained optimum path for monetary and fiscal tools is not coinciding with the defined desired path (based on growth rate of line steady). Also, a seventy control of each separately causes reduces deviance of the target variables optimum path from its desired path (like the gross domestic product, price level,….) and the simultaneous use of two led to most reduces deviance of optimum paths from desired paths. Then, through six scenarios in optimal control theory, the objectives of the research are provided. So, the obtained results of this research show us that Iran's economy needs to use simultaneous of monetary and fiscal policy coordinated and simultaneously, to reach the target variables desired level. In this way, the synthetic policies will show us the better results than choosing separately each of polices of toward aggregate Demand.Therefore, it is suggested that the use of fiscal policy be given priority.