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Paper Information

Journal:   TAHGHIGHAT-E-EGHTESADI   Summer 2004 , Volume - , Number 65; Page(s) 213 To 242.
 
Paper: 

THE EFFECT OF THE OPTIMAL MONETARY AND FISCAL POLICIES ON MAJOR MACROECONOMIC INDEXES IN IRAN: AN APPLICATION OF OPTIMAL CONTROL THEORY

 
 
Author(s):  JAFARI SAMIMI A., TEHRANCHIAN A.M.
 
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Abstract: 
The purpose of the present paper is quantitativedeterminationof optimal monetary and fiscal policies under floating exchange rate regime for the countrythird developmentplan (1383-1379).For this purpose, first, a welfare loss functionis designedin which penalized on the quadratic deviation of objectivevariables such as: economic growth, inflationrate, unemployment,currentaccountand the ratio of government budget deficit to GDP from their optimal control algorithm"OPTCON"the optimalvaluesof governmentsinvestment and consumption expendituresand tax revenues and money stock (liquidity) are calculated by minimizing the welfare loss function subject to a dynamic nonlinear system. The comparison between optimalmonetaryand fiscalpolicieswiththe-third plans proposed macroeconomic policies shows the optimal values of liquidity, governmentconsumptionand investmentare lower and the optimal values of tax revenues are greater than the proposedvalues in third plan. Also, under optimal monetary and fiscal polices, the rate of economic growth, the ratio of budget deficit to GDP and current account will be better compared with the third plans proposed macroeconomicpolicies.The results of the present paper could help policy makers in designingfiscal and monetarypoliciesof the fourth developmentplanandthe optimalvaluesof instrumentvariables
 
Keyword(s): OPTIMAL MONETARYAND FISCAL POLICIES, STOCHASTICOPTIMAL CONTROL,OPTCONALGORITHM,FLOATINGEXCHANGERATE REGIME.
 
References: 
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