The Foreign Exchange Intervention Impact on Macroeconomic Variables in Iran: DSGE Approach

Document Type : Original Article

Authors

1 Management and Economy Faculty, Yazd University, Yazd,Iran

2 Economic Group, Accounting, Management and Economic Faculty, Yazd Islamic Azad University, Yazd, Iran

3 Economic Group, Accounting Management and Economic Faculty, Yazd Islamic Azad University,Yazd,Iran

4 Economic Group, Accounting, Management and Economic Faculty, Yazd Islamic Azad University,Yazd, Iran

Abstract

The purpose of this paper is to examine the effects of the Iranian central bank intervention policy on the macroeconomic variables. Foreign exchange intervention is every buying and selling foreign assets against domestic assets in the exchange market. This intervention is not limited to a single monetary regime and can be implemented in all monetary regimes. But the form of intervention depends on the state of the monetary and exchange regime of a country. To investigate the effects of the intervention policy on the macroeconomic variables, the dynamic stochastic general equilibrium (DSGE) model has been used, based on seasonal frequency data from 1989-2017. According to the results of the shocks from the exchange rate and foreign exchange reserves, the variables of economic growth, consumption, investment decreased in a short run but inflation rate variables, final production costs and nominal interest rates increased. In other words, the intervention of the central bank in the exchange market has higher costs of the macro economy.

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