Household's Utility Fluctuations and Its Effects on Iran's Agricultural Sector: A Dynamic Stochastic General Equilibrium (DSGE) model Approach

The model of household behavior, derived from its utility and preferences, has a prominent role for the community to achieve development and economic growth. The aim of this study is to investigate the effects of household's utility fluctuations, in the form of preferences, money demand and labor supply shocks on Iran's agricultural sector. To do so, based on the theoretical principles of Keynesian school and realities of the Iranian economy, a Dynamic Stochastic General Equilibrium (DSGE) model emphasizing on agricultural sector was developed. The results of the simulation, using the calibrated and estimated parameters, indicate that a positive preference shock results in a rise in consumption, production, employment and prices indices in the agricultural sector, while investment, exports and the rate of real wage decline. Following a positive demand money shock, except agricultural price index, other variables declined. Positive labor supply shock, increased employment in the agricultural sector, however, the production, investment and exports decreased in the first period. In addition, in response to the shock, agricultural consumption and prices increase while real wages fall. The Comparison of the results show, in total, the effects of preferences and labor supply shocks are more persistent than those of money demand shock. In magnitude, on average, the effects of preferences shock, on agricultural variables, is higher than the effects of the other two shocks.