Authors

• Mohammad Noferesti ¹
• Fardin Mohammadi ²

¹ Assistant Professor of Economics, Shahid Beheshti University

² Senior Economist, Nuclear Technology, AEOI

Abstract

This paper analyzes a macro-micro linkage using a vector autoregressive model (VAR) for Iran comprising following variables: Gross Domestic Product(GDP), Inflation, Exchange Rate, Oil Revenue, Government Expenditure, Money Supply, and a Micro-simulation model of household budget. The procedure is a top-down, macro to micro simulation, aiming at evaluating the impact of macroeconomic shocks on the Iranian rural and urban household’s distribution of income. A representative of the Iranian rural and urban households, which involves  social characteristics, is linked with household budget equations. Income is a function of social characteristic and macro economic variables in the household budget model. The research work  is done through three steps:
First in the macro-model, variables and shocks are simulated during ten years (2006-2016). Second, in the micro-model, the incomes of the entire households are simulated after and before the shocks. Finally, the Gini coefficient index, as an inequality indicator, is calculated using the results of the second step. We have achieved the following results: GDP, inflation, weighted exchange rate and oil shocks increased inequality, while money supply and government expenditures decreased inequality for urban households. For rural households, GDP, inflation, government expenditure and oil shocks decreased inequality, while weighted exchange rate and money supply did not have any  effect on inequality.

Keywords

• Income Distribution
• macro-micro simulation
• VaR
• Macroeconomic Shocks
• Iranian Economy