Abstract

This paper estimates the dynamic effect of three micro-structural shocks, namely, investment-specific technology, markup and technology shocks to key components of the Iranian economy: private investment behaviour. The identification strategy positions the structural shocks to private investment behaviour in the Dynamics Stochastic General Equilibrium (DSGE) framework with a three-accuracy test estimation: The Brooks and Gelman test, the Metropolis-Hastings jumping distribution acceptance ratio, and the distribution of the deep posteriors parameters are asymptotically normal. The quarter economic data of Iran economy from July 1988 until March 2015 is applied. The findings illustrate that the structural shocks about technology have a similar impact and cause a growth in private investment, and the only difference is, in investment-specific technology shock due to a temporary decrease in the capital expenses installation (Tobin's Q), an investment boom is driven. In contrast, the price markup shock due to inflation causes a decline in all investment indices.

Highlights

  • The recent global financial crisis has put financial constraints on governments limiting their capacity to increase public investment and promote economic growth

  • In this study using quarterly data from July 1988 until March 2015 of the Iranian economy, we have examined the responsiveness of private investment to three microstructural shocks; investment-specific technology, markup, and technology shocks in a Dynamics Stochastic General Equilibrium (DSGE) framework

  • The price markup shock due to inflation causes a decline in all the investment indices

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Summary

Introduction

The recent global financial crisis has put financial constraints on governments limiting their capacity to increase public investment and promote economic growth. Despite the aforementioned remarkability of private investment, previous research has neglected to investigate the impact of different variables on investment behaviour, in response to microstructural shocks. In this study using quarterly data from July 1988 until March 2015 of the Iranian economy, we have examined the responsiveness of private investment to three microstructural shocks; investment-specific technology (the shock of households in the business cycle), markup (the shock of final good producer in the business cycle), and technology shocks (the shock of intermediate goods producer) in a Dynamics Stochastic General Equilibrium (DSGE) framework. The only difference is that in investment-specific technology shock, because of the temporary decrease of the installing capital expenses (Tobin's Q) an investment boom is driven.

Literature review
Materials and Methods
Final Good Producers
Government and Central Bank
Results and Discussion
Conclusion

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