Applications of fiscal policy with the presence of households with finger consumption using dynamic stochastic general equilibrium model approach

Document Type : Research Paper

Authors

1 PhD student of Economics, University of Allameh

2 Associate Professor of Economics, University of Allameh

Abstract

This thesis investigates the impact of government spending shocks on macroeconomic variables in Iran, especially on private consumption in the form of a stochastic dynamic general equilibrium (DSGE) model, in a closed economy with non-Ricardian households and a relatively rigorous fiscal policy. The model simulation results show that non-Ricardian households are a stimulus to increase total consumption in response to government spending shocks relative to the baseline without non-Ricardian households.
The findings also imply that the positive impulse of government spending in Iran does not allow for the dynamic growth of investment. In other words, The effect of spending shock on the investment is negative, while the employment of non-Ricardian household increased as wage increased, but investment declined. also, fiscal policy has a positive effect on production, although the multiplier is lower than one and will decrease over time. Given that the effect of government spending shocks on private consumption spending is positive. The model results do not follow Ricardian Equivalence Theorem, which is in the form of crowding-in

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References

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