Iranian Journal of Economic Research

Simulation the Effect of Targeted Subsidieson Economic Growth, Inflation and Unemployment in Iran Using Stochastic Optimal Control Algorithm (OPTCON2)

Authors

Rahim Goodarzi 1
Mahmood Sabuhi 2
Naser Shahnoushi 3
Hossein Mehrabi 4
Mashallah Salarpour 5

1 PhD Candiate in Economic, Zabol University

2 Associate Professor in Economic, Zabol University

3 Associate Professor in Economic, Ferdosi Mashhad University

4 Associate Professor in Economic, Kerman University

5 Assistant Professor in Economic, Zabol University

Abstract
Subsidies are known to distort prices, the optimal allocation of resources and economic growth and induce budget deficit and increase social costs, resulting in irreparable adverse effects on the economy. On the other hand implemetation of subsidy reform programs can have a widespread impact on economic aggregates  A clearly specified trend  in trajectory of macroeconomic variables is expected to better enable policy makers in planning for appropriate fiscal and monetary policy pakeges. The task of determining the best policy package, consistent with macroeconomic goals and constraints presents a genuine Stochastic Optimal Control problem. Solution for such a problem requires a practical statistical algorithm. The OPTCON2 method employed in this study seems to be a suitable method.  First, the econometric relationships among the macroeconomic variables of the model is estimated using 2SLS statistical method. Subsquently an OPTCON2 prorgram is specified using C # Language in a visual studio.    Simulation program  for subsidies during the 5th development plan indicates a decline in  economic growth for the first year, followed by a small rise in growth rate during the subsequent years.  The findings also indicates an initial rise in inflation  followed with a decline in later periods. It was also indicated that the unemployment rate is likely to rise in the beginning, leveling down to a given rate later.
 

Keywords

Stochastic optimal control algorithm
Economic Growth
Inflation
unemployment rate

  • Receive Date 18 April 2016
  • First Publish Date 18 April 2016

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