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Optimality of Monetary and Fiscal Policies in Iran: An Application of the Stochastic Optimal Control Theory

Author

Listed:
  • Amir Mansour Tehranchian

    (Department of Economics, Mazandaran University, Babolsar, Iran)

  • Masoud Abdi Rad

    (MA of Economics, Mazandaran University, Babolsar, Iran)

Abstract

This paper analyzes the optimality of macroeconomic policies in Iran during the third five year development plan (2000-2004). For this purpose, we develop and use a macro econometric model for Iran. We determine optimal monetary and fiscal policies as solutions of optimum control problems with a quadratic objective function and a macro econometric model as a constraint. The results show that, the optimal values of macroeconomic policies have deviation from those proposed in third development plan. So that, deviations in the variables of government current expenditures, government tax revenues and government oil revenues are low and in variables of government capital expenditures and money stock as monetary policy are high.

Suggested Citation

  • Amir Mansour Tehranchian & Masoud Abdi Rad, 2007. "Optimality of Monetary and Fiscal Policies in Iran: An Application of the Stochastic Optimal Control Theory," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 12(3), pages 1-12, fall & wi.
    • Handle: RePEc:eut:journl:v:12:y:2007:i:3:p:1
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    References listed on IDEAS

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    1. Mundell, Robert A., 1995. "The international monetary system: The missing factor," Journal of Policy Modeling, Elsevier, vol. 17(5), pages 479-492, October.
    2. Peterson, David W & Lerner, Eugene M, 1971. "Optimal Control and Monetary Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 12(2), pages 186-195, June.
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    Cited by:

    1. Masoud Abdi Rad & Amir Jaafar Zadeh, 2009. "Quantitative Determination of Optimal Fiscal and Monetary Policies: A Stochastic Optimal Control Analysis for Iran," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 14(2), pages 1-17, fall.
    2. Intan Syahrini & Yusri Hazmi & Raja Masbar & Aliasuddin & Said Munzir, 2021. "Optimal Control Dynamic Relationships and Fiscal Policies in Indonesia’s Economy," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 34-51.

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