Simulating the Effects of Macroeconomic Shocks on Agricultural Sector: Dynamic Stochastic General Equilibrium (DSGE) model approach

Document Type : Research Paper


Professor / Shahid Bahonar University of Kerman


Knowing type of the effects of economic shocks and uncertainties over economic body is a suitable guide to make proper decisions in the event of economic shocks. Given the importance of the agricultural sector, the present study examines the effects of macroeconomic shocks: (including agricultural productivity, monetary, oil revenues and government spending shocks) on Iran’ agricultural sector. To this end, we construct a Dynamic Stochastic General Equilibrium (DSGE) model emphasizing on agricultural sector, considering Iran’s Economic realities based on data from the period 1991-2013. The results show that a positive productivity shock has a positive effect on agricultural output (2.06%), employment (0.23%), capital (1.46%), real wages (0.33%) and home consumption goods (1.33%) and a negative effect on marginal cost, price indexes and imported consumption goods. Positive monetary shock leads to an increase in all agricultural variables except real wages. Following positive oil revenue; output (0.73%), employment (0.087%), real wages (0.68%) and price indexes fall. Increase in government expenditure, capital (0.28%) and real wages (0.18%) decrease. The results, show that the effects of agricultural productivity shock are more persistent and desirable when compared to those of other shocks and in magnitude, generally, the greatest responses are of the shock. On the contrary, positive oil revenue shock has the most negative effects on agricultural sector. Given the negative effects of the oil revenue shock, the government should allocate a share of foreign exchange earnings arising from a positive oil shock to be spent on supporting and strengthening agriculture instead of importing agricultural consumption goods and weakening it. 


  1. Amir Azodi, A. & Mohamadim H. (2010). Analysis of the effect of monetary and financial policies on agricultural sector variables. Quarterly Journal of Economic Research and Policy. 53:45-57, (In Farsi).
  2. Amirtymouri, S. & Sadeghyan, S. (2007). Total factor productivity growth in Iran's agricultural sector and its Perspective in the fourth development plan. Agricultural Economics and Development. 59:36-52, (In Farsi).
  3. Apere, T. O. & Karimo, T. M. (2015). Monetary Policy Shocks and Agricultural Output Growth in Nigeria IOSR Journal of Economics and Finance (IOSR-JEF). 6 (2), 45-50.
  4. Bakhtiari, S. & Haghi, Z. (2001). The survey of effects of oil revenues increase on agriculture sector: Dutch Disease in Iran. Agricultural economy and development, (35), 109-139.
    1. Beck, R. & Kamps, A. (2009). Petrodollars and Imports of Oil Exporting Countries, working Paper Series No 1012, European Centeral Bank.
    2. Calvo, G. (1983). Staggered Prices in a Utility-Maximizing Framework. Journal of Monetary Economics, 12(3): 383-398.
    3. Červena M. & Schneider, M. (2014). Short-term forecasting of GDP with a DSGE model augmented by monthly indicators. International Journal of Forecasting, 30 (2014), 498–516.
    4. Dib, A. (2001). An estimated Canadian DSGE model with nominal and real rigidities. Bank of Canada working paper, No. 26.
    5. Dixit, A. K. & Stiglitz, J. E. (1977). Monopolistic Competition and Optimum Product Diversity. American Economic Review, 67(3): 297–308.

10. Eslami, M. (2015). Investigating the relationship between Agricultural subsidies and productivity shocks emphasizing on crop subsector. Journal of Agricultural Economics Research. 1(7): 187-204, (In Farsi).

11. Fernández-Villaverde, J. & Rubio-Ramírez J.F. (2006). A Baseline DSGE Model. Duke University and Federal Reserve Bank of Atlanta. Working paper.

12. Fuglie, K. (2008). IS a Slowdown in Agricultural Productivity Growth Contributing to the Rise in Commodity Prices? Agricultural Economics, 39 supplement 431-441.

13. Ghasabi Kohne, P., Lotfali Pour, M.R. & Ahmadi, M.T. (2014). Investigation the Influencing Mechanisms & Short Term - Long Term Dynamism Impact of Iran’s Oil Revenues on Value Added in Agriculture Management. Asian Journal of Research in Business Economics and Management, 10, 184-193.

14. Harri, A. & Hudson, D. (2009). Mean and variance dynamics between agricultural commodity prices and crude oil prices. The Economics of Alternative Energy Sources and Globalization: The Road Ahead Meeting, Orlando, FL, November 15-17.

15. Hashemi, R. (2014). Analysis of the Macroeconomic Variables Effect on the Agricultural Sector. Agriculture Science Developments, (3)11, 370-374.

16. Manzour, D. & Taghipoour, A. (2015). Constructing a DSGE model for a small open oil exporting country: case study Iran. Economic policies and researches, 75, 7-44.

17. Mirzaei Khalil Abadi, H., Naghavi, S., Mehrabi Boshrabadi, H. & Jalaee Esfandyari, S.A. (2009). Investigating the effects of monetary shocks on Iran’s agricultural sector. Journal of Agricultural Economics Research, 1(3), 123-147. (In Farsi).

18. Mohamadi, M., Poursafar, Z. & Azadi, A. (2015). Measuring the growth of total factor productivity in agriculture and evaluating its role on the growth of value added and exports of this sector using the Johansson Co-accumulation technique. Quarterly Journal of Applied Economics, (5), 57-68 (In Farsi).

19. Moshiri, S., Bagheri pormehr, Sh. & Mousavi Nik, S.H. (2011). Evaluating the dominance of fiscal policy on the Iran’s economy through a Dynamic Stochastic General Equilibrium (DSGE) model. Quarterly of   research of economic growth and development .(2) 5 69-90, (In Farsi).

20. Mousavi, S.N., Moamadi, H. & Akbari, S.M. (2010). Investigating the Effects of Governmental Financial Policies on the Value Added of Agricultural and Industrial Sector. Agricultural Economics Research, 7, 121-134, (In Farsi).

21. Parvin, M., Bahrami, J. & Mahdi, S. (2012). Impact of financial shocks on production and price level in Iran using a structural vector regression model itself. Economic Modeling Quarterly, 4, 21-39, (In Farsi).

22. Piri, M., Javidan, I., & Faraji Dizji, S., (2011). An investigation on the effect of changes in oil export on the growth of agriculture in Iran, Journal of Economy and Development of Agriculture (Agricultural Sciences and Industries), 25, 3, 275-283.

23. Serra, T. (2011). Volatility Spillovers between Food and Energy Markets: A Semiparametric Approach. Energy Economics, (33) 6, 1155-1164.

24. Shirin bakhsh, Sh. & Bayat, M. (2009). Study the Symmetric and asymmetric effects of oil shocks on the value-added in the sectors of agriculture and services in Iran. The Quarterly of Energy Economics Studies. (7) 26, 1-20, (In Farsi).

25. Sims, E. (2011).Graduate Macro Theory II: Notes on Medium Scale DSGE Models. University of Notre Dame. Working paper

26. Taghavi, M. & safarzadeh, S. (2009). The optimal rate of liquidity growth in Iran’s economy based on a Dynamic Stochastic General Equilibrium (DSGE) model. Quarterly of Economic Modeling, (3) 3, 77-104, (In Farsi).

27. Taheri, F., Mohamadi, H. & Mousavi, S.N. (2008). Analysis of the effects of increasing government expenditures on macroeconomic variables of the agricultural sector and Iran's economy: an analysis within the framework of general equilibrium. Quarterly Journal of Economic Research and Policy, 47, 97-122, (In Farsi).

28. Tavakolyan, H. (2012).  Investigating New Keynesian Phillips curve through a Dynamic Stochastic General Equilibrium (DSGE) model for Iran. Journal of Economic research, (91) 3, 1-22, (In Farsi).

29. Vahidi, Z., Shaghagi Shahri, V. & Pahlavan Zadeh, F. (2014). Evaluating the Symmetric and asymmetric comparative effects of oil shocks on the value-added in the sectors of agriculture and industry in Iran. Quarterly Strategic Policy and Macro, (2)8, 77-93, (In Farsi).

30. Wang, S.  & McPhail, L. (2015). Impacts of Energy Shocks on US Agricultural Productivity Growth and Commodity Prices. A Structural VAR Analysis, Energy Economics,.

31. Wang, Y., Wu, C., & Yang, L. (2014). Oil price shocks and agricultural commodity prices, Energy Economics (2014),

Zhang, C. & Qu, X. (2015).The effect of global oil price shocks on China’s agricultural commodities, Energy,.