Investigating the Effects of Economic Shocks with housing Finance in a DSGE Model

With the introduction of any given variable in random dynamic general equilibrium models, the behavioral functions of economic agents will change, and consequently the shocks to the economy show a different direction and response. One of the most important sectors in the dynamics of a countrychr('39')s economy is the housing sector and one of the main determinants of the stagnation and boom of the housing market is the variable financing. In this regard, banks play a special role in monetary policy and financing of various economic sectors. In this study, considering the possibility of simulating the economy and explaining the behavior of macroeconomic variables to shocks to the economy using DSGE models, we investigate the effects of economic shocks in terms of housing financing. To estimate the parameters, macroeconomic variables data from 1998 to 2018 were used and the effects of economic shocks were evaluated using the approach of determining the role of housing financing. The results show that modeling the Iranian economy with DSGE approach and considering the role of housing financing has provided the ability to explain the Iranian business cycle. Also, based on the findings of the study, in terms of housing financing as an important variable in the Iranian economy, it can exacerbate the effects of shocks can have a significant impact through the housing market on business cycles and economic dynamics.