Document Type : Original Article
Authors
1
PhD Candidate, Department of Economics, Ar.C., Islamic Azad University, Arak, Iran.
2
Corresponding Author,Assistant Professor, Department of Economics, Ar.C., Islamic Azad University, Arak, Iran.
3
Associate Professor, Department of Financial Management, Ka.C., Islamic Azad University, Karaj, Iran
4
Assistant Professor, Department of Economics, Ar.C., Islamic Azad University, Arak, Iran.
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.
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