Estimation of the Equilibrium Rate of Interest In Iranian Economy: A General Equilibrium Approach

Using the quarterly data of 1990:1 to 2008:1 and in a general equilibrium approach, we investigate the long run equilibrium path of the equilibrium interest rate as well as the potential output. We implement a structural reduced form of a general equilibrium model consistent with Iran’s economy and estimate the unobservable variables by employing the Kalman filtering technique. A exponential utility function is used to estimate the relative risk aversion coefficient and the rate of time preference. The results show the average equilibrium real rate of interest within the sample period is as around 5.5%.