Analysis of the Effect of Health and Monetary Policy Shocks on Macroeconomic Variables in the Framework of Money in the Utility Function

Document Type : Original Article

Authors

1 Ph.D Candidate in Economics, Faculty of Management and Economics, Shahid Bahonar University of Kerman, Kerman, Iran

2 Associate Professor of Economics, Faculty of Management and Economics, Shahid Bahonar University of Kerman, Kerman, Iran

3 Ph.D Candidate in Economics, Faculty of Administrative Science and Economics, University of Isfahan, Isfahan, Iran

Abstract

The outbreak of the corona virus is primarily a threat to public health, but it is increasingly becoming an economic threat that requires a decisive and coordinated policy response. Following the outbreak, the country's monetary and financial authorities have taken a wide range of measures, such as closing educational centers, shopping malls, lending to the vulnerable, importing drugs, delaying loan repayments, etc. to limit the spread of the virus. The aim of this study is to investigate the effect of expansionary monetary policy during the outbreak of a pandemic disease. For this purpose, after calibrating the parameters based on the quarterly information of Iran's economy during the period 1991: 03: 01- 2021: 03: 20, in different scenarios and according to the persistence of health disaster risk, the model is simulated. The results show that the outbreak of a pandemic disease reduces working hours and consequently the marginal productivity of physical capital; thus physical investment, production, and total consumption are reduced. In addition, the implementation of an expansionary monetary policy during the outbreak reduces the severity of the recession, but is accompanied by a decline in household health. Therefore, it is recommended that public vaccination be included in the agenda as a necessary measure.

Keywords

References

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Journal of Economics and Modelling
Volume 12, Issue 2 - Serial Number 46
September 2021
Pages 31-63

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