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The Impact of Oil Shocks on Foreign Trade in Iran: The Role of Inflation Targeting Policy

Mehdi Behrad-Amin (), Gholamreza Zamanian () and Marziyeh Esfandiari ()
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Mehdi Behrad-Amin: Ph.D. Candidate in Economics, University of Sistan and Baluchestan
Gholamreza Zamanian: Associate Professor of Economics, University of Sistan and Baluchestan
Marziyeh Esfandiari: Assistant Professor of Economics, University of Sistan and Baluchestan

Quarterly Journal of Applied Theories of Economics, 2017, vol. 4, issue 1, 1-28

Abstract: In this paper, we evaluate the effect of inflation targeting policy in absorption and reduce the negative impacts of oil shocks on foreign trade. In this regard, in order to evaluate the impact of this policy on the economy of Iran, we used a modified New Keynesian dynamic stochastic general equilibrium framework for a small open economy. We estimate the model using Bayesian approach over the period 1989-2014. The results of the simulation model variables indicate that inflation targeting policy in relation to the failure to adopt this policy, has been reduced the severity and duration of negative effects of oil revenues shock. This policy has been quite successful in controlling inflation and the severity of the decline in exports and increase in imports is reduced in case of shock. Also, in the inflation targeting regime, the decline in non-oil production and total production after the shock has been less severe.

Keywords: Inflation targeting; Foreign trade; Oil shock; DSGE model (search for similar items in EconPapers)
JEL-codes: C53 E52 E58 F14 F17 (search for similar items in EconPapers)
Date: 2017
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