Optimal Policy Rules for Iran in a DSGE Framework (Islamic Musharakah Approach)

Maryam Soleimani Movahed (), Zahra Afshari () and Mehdi Pedram
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Maryam Soleimani Movahed : Alzahra University
Zahra Afshari : Alzahra University
Mehdi Pedram : Alzahra University

Journal of Money and Economy, 2014, vol. 9, issue 4, 1-30

Abstract: The aim of this paper is determination of an optimal policy rule for Iranian economy from an Islamic perspective. This study draws on an Islamic instrument known as the Musharakah contract to design a dynamic stochastic general equilibrium model. In this model the interest rate is no longer considered as a monetary policy instrument and the focus is on the impact of economic shocks on the Dynamics of Macroeconomic variables. Finally, a policy rule based on Musharakah is introduced from which the optimal policy and empirical coefficients are derived. Using data from Iran, the empirical results indicate that the policy responses of central bank to output gap and inflation are in accordance with expectations and therefore, economically meaningful. So specified instrument policy rule has to be considered as optimal in general. The optimal policy rules indicate that when the authorities pay equal attention to the inflation and output gaps the minimum loss is occurred.

Keywords: Musharakah; DSGE model; optimal simple rule; Iran (search for similar items in EconPapers)
JEL-codes: C61 C63 E42 E52 (search for similar items in EconPapers)
Date: 2014
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