Designing a DSGE model to investigate the effects of impulses to improve the productivity of domestic oil equipment and oil prices on Iran's macroeconomic variables

Pricing The oil industry is one of the most effective and largest economic sectors in Iran, which, in addition to providing a part of the country's energy needs, plays an important role in determining the level of national power and international credit. The oil sector in Iran's economy has provided the majority of the country's national income for many years and has always been the main source of government income. In addition, many experts believe that, due to extensive previous and present links, the oil industry is a driver of the country's economy, whose growth and development can play a significant role in improving the macroeconomic situation of Iran. This key role and position of the oil industry in Iran's economy have caused its impulses to affect the entire economy. Therefore, it is very important to study the effects of the shocks in the oil industry on macroeconomic variables. In this regard, oil price impulses and improving the productivity of domestically produced oil equipment are important factors that can affect the economic status of oil-producing countries. Therefore, in the current research, the impact of the impulses of these factors on macroeconomics variables has been investigated in the form of a dynamic stochastic general equilibrium model of the new-Keynesian open economy.

Dynamic Stochastic General Equilibrium (DSGE) models have several distinct features. First, they are dynamic because economic decisions are made dynamically in the real world. The dynamism of these models helps to monitor the movement of the economy over time. Also, these models are stochastic because the real world is uncertain and this uncertainty can be a source of macroeconomic fluctuations. The dynamic feature of DSGE models takes into account the fact that the economy can be affected by random shocks such as technological changes or errors in macroeconomic policies. In addition, these models are examined in the context of general equilibrium because the general equilibrium imposes order on the system. To design the DSGE model in the current study, two oil and non-oil sectors are considered. In the oil sector, the operators are production service contractor companies and the National Iranian Oil Company. Production service contractor companies receive the oil reserves of a field from the National Oil Company in the form of service contracts. By using labor, capital, and intermediate goods, they carry out activities from exploration to production from the field. These activities are named production services, and the services are sold to the National Oil Company. In the non-oil sector, households, intermediate and final goods-producing companies, importing companies, the government, the central bank, and the National Development Fund are the most important economic sectors. After the model is designed and the final equations are extracted, linearization of the equations resulting from the optimization is done and the coefficients of the model are calibrated. After the long-term ratios are obtained, the simulation process of the model is done and its accuracy is tested. In the following, after the model is simulated to obtain the parameters accurately by using the data of 1973-2018, the estimation of the model is done by Bayesian or maximum likelihood method.

The results of estimating the model by the Bayesian method showed that the productivity momentum of domestic intermediate inputs has caused an increase in oil production and export, GDP, household consumption of petroleum products, employment and oil investment, oil revenues and government expenditures as well as non-oil investment. This impulse has slightly reduced non-oil production and consumption and immediately increased it greatly. Inflation, in response to this impulse, after a slight increase in the initial periods, has immediately decreased sharply. In addition, the results of the estimation and dynamic analysis of the effects of negative oil price impulse on the variables show that oil production has a positive reaction to this impulse. One reason for this is the decrease in oil revenues and the effort to achieve sufficient foreign exchange revenues required by the budget (following the decrease in oil prices). This issue is considered as a new finding in domestic studies, which may be due to the type of modeling the oil sector. This impulse has also reduced non-oil GDP after a small increase in the initial stages and has had a positive effect on oil employment, oil exports, non-oil investment and inflation. In addition, the amount of household consumption, oil investment, oil revenues and government expenditures, the volume of money and non-oil employment have decreased in response to this impulse.

Conclusions and policy implications:

 In general, the most important positive consequences of the impulse to improve the productivity of oil goods and equipment are the increase in the total production, employment, investment, export, and oil revenues. Regarding the positive consequences of the negative impulse of the oil price, there are also such issues as the increase of the total production, investment and oil production, employment, and oil exports. The common negative consequences of the two impulses include an increase in government spending, money volume, and inflation, which can be explained by considering the entry of foreign exchange resources from oil exports and the incorrect management of these resources. Therefore, efficient planning and accuracy in the correct use of these resources in the production sector should be on the agenda. In this regard, during periods of increased oil revenues, the surplus revenues should be saved in the National Development Fund to avoid negative consequences that can occur in the economy. In addition, a larger share of the fund resources should be allocated to the non-oil sector to reinforce this sector.