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The Impact of Oil Shocks on Foreign Trade in Iran: The Role of Inflation Targeting Policy

Author

Listed:
  • Behrad-Amin, Mehdi

    () (Ph.D. Candidate in Economics, University of Sistan and Baluchestan)

  • Zamanian , Gholamreza

    () (Associate Professor of Economics, University of Sistan and Baluchestan)

  • Esfandiari , Marziyeh

    () (Assistant Professor of Economics, University of Sistan and Baluchestan)

Abstract

In this paper, we evaluate the effect of inflation targeting policy in absorption and reduce the negative impacts of oil shocks on foreign trade. In this regard, in order to evaluate the impact of this policy on the economy of Iran, we used a modified New Keynesian dynamic stochastic general equilibrium framework for a small open economy. We estimate the model using Bayesian approach over the period 1989-2014. The results of the simulation model variables indicate that inflation targeting policy in relation to the failure to adopt this policy, has been reduced the severity and duration of negative effects of oil revenues shock. This policy has been quite successful in controlling inflation and the severity of the decline in exports and increase in imports is reduced in case of shock. Also, in the inflation targeting regime, the decline in non-oil production and total production after the shock has been less severe.

Suggested Citation

  • Behrad-Amin, Mehdi & Zamanian , Gholamreza & Esfandiari , Marziyeh, 2017. "The Impact of Oil Shocks on Foreign Trade in Iran: The Role of Inflation Targeting Policy," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 4(1), pages 1-28, May.
  • Handle: RePEc:ris:qjatoe:0064
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    More about this item

    Keywords

    Inflation targeting; Foreign trade; Oil shock; DSGE model;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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