Hadi Keshavarz

Abstract: Policymakers are required to settle on a plan of action during booms and busts. However, they need to deal with important questions to make the best decision: Are pro-cyclical fiscal policies better than counter-cyclical ones or vice versa? Moreover, do they need to use fiscal rules or not? This research aims to address these questions using a Dynamic Stochastic General Equilibrium Model. Our model includes households with infinite horizons, final goods producer firm, intermediate goods producer firm, government, the oil sector, and the National Development Fund of Iran. In the first scenario, we compare the effects of implementing a countercyclical fiscal rule with a case in which no counter-cyclical fiscal rule is implemented. Research findings show that with regard to oil shocks, the fiscal rule based on oil revenues has decreased the intensity of economic fluctuations compared to the case in which no counter-cyclical fiscal rule is implemented. As for money shocks, there was no significant difference between implementation and non-implementation cases. In the second scenario, we consider three cases: pro-cyclical fiscal policy, countercyclical fiscal policy, and independent fiscal policy. According to the results, with regard to oil shocks, the pro-cyclical fiscal policy has had the largest impact on economic fluctuations, while the counter-cyclical one has had the smallest impact. Furthermore, the effects of all cases were the same regarding money shocks.