Investigating the Impact of Currency Shocks on Macroeconomic Variables and the Labor Market Demand of Iran Using Stochastic Dynamic General Equilibrium Models

Objective: Currency shocks affect macroeconomic variables and affect different economic markets. The exchange rate is one of the influential and important variables in economic systems, and in countries like Iran, where the major part of the government's income is formed from foreign currency income from oil exports, it is much more important. Exchange rate as an important key variable including the effects of developments and relations outside the economy on the domestic economic variables of interest and its effect on these variables is of special importance. On the other hand, employment is an effective factor in economic growth, income distribution and maintaining human dignity, and unemployment is the root of many anomalies and economic, social and political consequences. Currency impulses affect the demand of the entire economy through imports, exports, and demand for money, as well as the supply of the entire economy through the cost of imported intermediate goods. Therefore, the changes of this variable easily affect the economic structure of the countries, new theoretical discussions followed by experimental studies have shown that exchange rate impulses have different effects on macroeconomic variables in different economies. In such a way that the manner and size of this effect on the variables are different and depends on the initial conditions of each economy. The demographic structure of Asian countries and the abundant supply of labor on one hand and the lack of appropriate facilities and as a result insufficient demand on the other hand have made unemployment the most important socio-economic problem of these countries.
Method: Accordingly, the purpose of this paper is to analyze the effects of currency shocks on macroeconomic variables and labor demand in Iran using a stochastic dynamic general equilibrium model. In this study, currency shocks, real GDP, employment, interest rates, oil-free GDP, oil revenues, inflation, consumption and government consumption are considered as currency shocks as the source of fluctuations in the research model. The model is also simulated and solved using seasonal data and Bayesian estimator. The results of the model solving show that the model used to simulate the Iranian economy is very appropriate.
Results: The model is also simulated and solved using seasonal data and Bayesian estimator. The results of the model solving show that the model used to simulate the Iranian economy is very appropriate. The results of solving the model indicate that the model used to simulate Iran's economy is very suitable. The results obtained from the shock response functions caused by the currency impulse show that the production increases in response to the currency impulse in the short term due to the increase in exports and investment. In the following, due to the dynamics of the variables affecting production, the production decreased and returned to its stable level in the fifth period. The behavior of interest rate variables and public sector consumption with currency impulse is exactly the same as the behavior of production. The biggest declines are related to real GDP and interest rates. An increase in the exchange rate and a decrease in the interest rate will increase liquidity and increase the consumption of domestic consumer demand, which will cause the general price level to increase again. With the increase in consumption, inflation will start to increase, the changes in the domestic interest rate due to the currency impulse will also increase at first, then decrease and then increase again, so that in the long term its effect will tend to zero and it will reach its stable equilibrium state. Changing the exchange rate from different directions leaves opposite effects on production, and the result of these effects indicates the net effect of changing the exchange rate on production and employment. As the model outputs show. The results show that currency shocks reduce the medium-term real GDP, oil-free GDP, interest rates, government consumption and inflation and consumption. The results also show that severe currency shocks and rising exchange rates in the short run have reduced employment and labor demand. The effect of the change in the real exchange rate on production is revealed from two paths: one is the path of the amount of use of the existing production capacity and the other is the path of the amount of investment and creation of new production capacities. Also, due to the fact that the currency impulse leads to a decrease in the GDP over time and on the other hand causes an increase in the inflation rate and liquidity, it is recommended to use monetary tools as much as possible to avoid the extreme impact of the impulse. currency effects on the economy. On the other hand, the lower dependence of national income on oil can make the effect of exchange rate changes weaker.
Conclusion: The results show that currency shocks reduce the medium-term real GDP, oil-free GDP, interest rates, government consumption and inflation and consumption. The results also show that severe currency shocks and rising exchange rates in the short run have reduced employment and labor demand.