Monetary & Financial Economics

Equilibrium Analysis of Macroeconomic Variables’ Responses to Exchange Rate Shocks with Emphasis on “the Role of Productivity, Fiscal Policy, and Oil Revenues within a DSGE Framework”

Articles in Press

Document Type : Original Article

Authors

Hassan Naraghi 1
Ahmad Sarlak 2
Seyed Fakhroddin Fakhohosseini 3
Maryam Sharifnezhad 4

1 Department of Economics, Ar.C., Islamic Azad University, Arak, Iran.

2 Corresponding Author,Department of Economics,AR.C.,Islamic Azad University,Arak, Iran.

3 Department of Financial Management, Karaj Branch, Islamic Azad University, Karaj, Iran

4 Department of Economics, AR.C., Islamic Azad University,Arak,Iran.

https://doi.org/10.22067/mfe.2025.95675.1617
Abstract
In this study, a Dynamic Stochastic General Equilibrium (DSGE) model is developed to investigate the effects of exchange rate shocks on optimal monetary policy and the stock market in Iran. The model captures key features of the Iranian economy and simulates interactions among households, firms, the government, and the central bank. It analyzes the effects of shocks to total factor productivity, exchange rates, government oil revenues, and current government expenditures. Simulation results indicate that exchange rate shocks significantly influence macroeconomic variables, generating fluctuations in stock market returns and adjustments in optimal monetary policy. Strengthening the weight of inflation targeting in the monetary policy rule mitigates the negative impact of exchange rate shocks on output and stock market performance, although it imposes additional pressure on interest rates, potentially affecting capital market dynamics. The findings reveal complex and multidimensional relationships between exchange rates, monetary policy, and the stock market, highlighting the importance of carefully coordinated policy design for economic stability. This study provides both quantitative and qualitative insights into Iran’s economic mechanisms and offers guidance for formulating optimal policies under exchange rate volatility.

Keywords

Dynamic Stochastic General Equilibrium (DSGE) model
optimal monetary policy
exchange rate shocks
stock market
Subjects
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Monetary & Financial Economics

Articles in Press, Accepted Manuscript
Available Online from 16 December 2025

  • Receive Date 28 September 2025
  • Revise Date 09 December 2025
  • Accept Date 16 December 2025

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