Effect of State Economic Policies on Consumer Price Index as Index of Economic Stability in Iran: A Dynamics System Approach

This paper develops and estimates a dynamic model which investigates the most important factors on prices as an index of economic stability. In this model, the economy is divided into 5 sectors: production, production factors, money and price, foreign trade, and government; while it also considers the relationship between different sectors. The effect of policies has been examined in 7 scenarios. The results of the study show: 1. Increasing government expenditure led to an increased CPI. 2. Decreasing independence of Central Bank led to an increased CPI.; Comparing the results shows that the independence of Central Bank has the most important effect on CPI. According to the results:; policy-makers should strengthen the private sector. Independence of Central Bank would be beneficial. Moreover, due to the important role of oil in Iranian economy and the transfer of shocks into the economy, paying more attention to the production is necessary. Finally, Since investment on human capital leads to increased production and decreased CPI, paying more attention to the investment in this section/sector is necessary;