Iranian Journal of Economic Research

Abstract The real exchange rate is considered as a basic indicator in determining the level of international competition that explain the internal situation of the country. Instability in the performance of this Index implies imbalance in the economy. Instability of the real exchange rate will effect total demand of the economy by import and export and will influence overall economy through costs of intermediate and final imported goods. It’s the cause of changes and fluctuations in consumer and wholesale price indices that are calculated as the basis of inflation. The present study investigates the instability of the exchange rate on the private sector's consumption using annual data for the period 1352-1390. In this regard, values ​​of the real exchange rate volatility using the pattern of generalized autoregressive conditional heteroskedasticity (GARCH), and then the impact of the real exchange rate instability on private sector consumption is surveyed by using the method of Autoregressive-Distributed Lag (ARDL). The results of estimations show that in long term, Disposable income, liquidity, real exchange rate and the volatility of the real exchange rate have positive effect and Real interest rates have a negative impact on private sector consumption.

Abstract Optimality conditions for consumption behavior with liquidity constraints are obtained using the functional recurrence equation in Bellman’s dynamic programming and the generalized Hamiltonian function in Pontryagin’s maximum principle.  The rejection of Hall’s random walk hypothesis is then established for liquidity constrained consumers.  An explicit mathematical relation is formulated which demonstrates the effects of liquidity constraints on consumption, which implies that under certain conditions the liquidity constraint may shift the optimal consumption profile forward even when the rate of time preference exceeds the interest rate.  Our analysis is further developed to time-varying interest rates.          Using the Kuhn-Tucker conditions, we have shown the interactions between the time-varying interest rate, the utility discount rate and the severity of liquidity constraints.  It is shown, using the coefficient of absolute risk aversion, that how the time-varying interest rate may affect optimal consumption through intertemporal elasticity of substitution.  Simultaneous effects of the pure preference parameters, interest rates variations and the liquidity constraints on optimal consumption path are mathematically formulated.  Limitations in optimal control applications in modeling optimal consumption with liquidity constraints in a stochastic environment are briefly examined.

Abstract The main objective of this study is to assess the effects of monetarypolicies on consumption behaviors of rural households in Iran, using the Euler equations and OLS and IV(Instrumental Variable) estimation methods. Results show that there is no relationship between consumption growth of rural households and interest rate. In other words, there are no interactions between monetary policies and rural households' consumption. Also, rural consumption was limited more by credit availability than interest rate. Furthermore, precautionary savings is noticeable among rural households.