The Impact of Social damages on the Effectiveness of Fiscal and Monetary Policies: The DSGE Approach

 The purpose of this study is to investigate the effect of social damages (divorce, crime and addiction) on the effectiveness of fiscal and monetary policies. To achieve this, the literature on endogenous growth models has been used and the relationships of economic agents have been explained in the form of a dynamic stochastic general equilibrium model. In the designed DSGE model, labor productivity and human capital are the main factors of economic growth and social damages are considered as one of the main factors of depreciation in the accumulation of human capital in society. To measure the effect of social damages on the effectiveness of fiscal and monetary policies, two scenarios of existence and non-existence of social damages have been defined in the model, and then in each of the existing cases, fiscal and monetary shocks were applied to the model. The results show a decrease in the effectiveness of monetary and fiscal policies when social damages are defined in the model.