Scenario Making for Adopting Suitable Monetary Policy in reducing Economic Crises Caused by Widespread Diseases on Iran’s Economic Sectors (Case of Coronavirus outbreaks)

Articles in Press

Document Type : Original Article

Authors

• Mojtaba Hajizadeh ¹
• mehrzad ebrahimi ²
• hashem zare ³

¹ PhD student in Economics, Department of Economics and Management, Shiraz Branch, Islamic Azad University, Shiraz, Iran.

² Assistant Professor of Economics, School of Economics and Management, Shiraz Branch, Islamic Azad University, Shiraz, Iran.

³ Assistant Professor of Economics, School of Economics and Management, Shiraz Branch, Islamic Azad University, Shiraz, Iran

https://doi.org/10.22067/mfe.2024.84244.1328

Abstract

In this study, the optimal monetary policy was determined to reduce the negative effects of the shock caused by the spread of the corona disease on value added of economic sectors (agriculture, industry and mine and services) in Iran. For this purpose, the social accounting matrix (SAM) of the Islamic Parliament Research Center and the central bank's input-output table were used to collect data. Also, to analyze the data, the recursive dynamic computable general equilibrium (RDCGE) model and MATLAB software were used. The results showed that among the economic sectors, the service sector is more vulnerable to the shock caused by the spread of the Corona virus. Also, adoption an expansionary monetary policy equivalent to a 5% reduction in the legal reserve rate reduces the negative effects of the shock caused by the outbreak of the Corona virus on value added of studied economic sectors compared to the base scenario (not adopting a monetary policy). Also, adopting an expansionary monetary policy equivalent to a 10% reduction in the legal reserve rate reduces the negative effects of the shock caused by the outbreak of the Corona virus on the value added of studied economic sectors compared to the scenario 1 (5% reduction in the legal reserve rate) and adopting an expansionary monetary policy equivalent to a 20% reduction in the legal reserve rate reduces the negative effects of the shock caused by the spread of the Corona virus on the value added of studied economic sectors in comparison to scenario 2 (10% reduction in the legal reserve rate). Based on this, it is suggested to the monetary authorities to adopt an expansionary monetary policy under similar conditions so that commercial banks can provide facilities to households (in order to stimulate demand and prevent the reduction of production of goods and services) and producers (in order not to lay off or adjust the workforce) in order to reduce the value added of economic sectors.

Keywords

• Optimal monetary policy
• outbreak of corona disease
• value added of economic sectors
• recursive dynamic computable general equilibrium (RDCGE) model

Main Subjects

• Financial monetary economy