Central Bank’s Exchange Rate Management in Line with Clause 2 of the General Policies of the Seventh Development Plan under Economic Sanctions: A DSGE Approach

Farideh Khodadadi and Seyed Reza Nakhli
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Farideh Khodadadi: Assistant Professor, Department of Economics, Faculty of Economics and Political Science, Shahid Beheshti University, Tehran, Iran
Seyed Reza Nakhli: Assistant Professor, Department of Economics, Faculty of Governance, University of Tehran, Tehran, Iran

Quarterly Journal of Applied Theories of Economics, 2026, vol. 13, issue 1, 147-176

Abstract: Given the widespread use of economic sanctions and the introduction of new sanction regimes since the early 2010s, as well as the potential application of a “maximum pressure” policy during Trump’s second administration as a tool for economic-political leverage, this study seeks to provide a framework for evaluating the Central Bank’s exchange rate management in line with Clause 2 of the general policies of the Seventh Development Plan under economic sanctions. For this purpose, a DSGE approach with a Neo-Keynesian perspective is employed to simulate the impact of oil and financial sanctions on Iran’s economy over the period 1991–2024. The focal point of this research is the application of optimal monetary policies aimed at minimizing the Central Bank’s losses under sanction conditions. Simulation results indicate that implementing optimal monetary policies, with a focus on controlling inflation and reducing the output gap, can significantly mitigate the Central Bank’s losses under intensified oil and financial sanctions. This approach is efficient when emphasizing inflation control through exchange rate market management, stabilizing the exchange rate (and consequently, inflation), and alleviating pressures on domestic production inputs, in accordance with Clause 2 of the general policies outlined in the Seventh Development Plan.

Keywords: Exchange rate policy; Monetary policy; Oil sanctions; International financial sanctions; Stochastic dynamic general equilibrium model (search for similar items in EconPapers)
JEL-codes: E37 E52 F51 Q34 (search for similar items in EconPapers)
Date: 2026
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https://ecoj.tabrizu.ac.ir/article_20496_b38b0f9160971a06cfee4fcd1a0bf2a0.pdf

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Persistent link: https://EconPapers.repec.org/RePEc:ris:qjatoe:023068

DOI: 10.22034/ecoj.2025.67575.3436

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