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Investigating the Role of Monetary and Fiscal Policy Tools on Economic Growth Using Dynamic Simulation and Fuzzy Control Approach

Author

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  • Sahar Motamedi

    (Department of Economics, Shahid Chamran University, Ahvaz, Iran.)

  • Mansour Zarra-Nezhad

    (Department of Economics, Shahid Chamran University, Ahvaz, Iran.)

Abstract

In this study, a macro-economic model consisting of twelve behavioral equations and fourteen identity equations was estimated with the aim of investigating the effectiveness of monetary and fiscal policies set out in the fourth and fifth development plans. In the estimated model, the variables of development expenditures, current expenditures and tax revenues are used as fiscal policy tools and variables of liquidity and long-term interest rates of bank were used as monetary policy tools. The results of solving the model using a dynamic simulation showed that by the implementation of this scenario, one can achieve a steady growth rate for model’s endogenous variables during the period and reduce its deviation from target values. Then, a fuzzy control system was designed with the aim of minimizing deviations and changes in the deviation of non-oil GDP from the values determined in the fourth and fifth development plans. Liquidity variables and government development expenditures were used as control tools in this system. Results obtained from the fuzzy system showed that using control rules, the growth rate of liquidity can be put at a lower level and growth rate of development expenditure around quantified targeted values in the fourth and fifth development plans. Also, the oscillation amplitude of the inflation and growth rates of non-oil production can also be reduced.

Suggested Citation

  • Sahar Motamedi & Mansour Zarra-Nezhad, 2016. "Investigating the Role of Monetary and Fiscal Policy Tools on Economic Growth Using Dynamic Simulation and Fuzzy Control Approach," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 20(4), pages 479-500, Autumn.
    • Handle: RePEc:eut:journl:v:20:y:2016:i:4:p:479
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    References listed on IDEAS

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