The Effect of External Shocks on Employment in Different Exchange Rate Regimes Assuming Price and Wage rigidity: A DSGE Approach

Document Type : Research Paper

Authors

1 PhD student in Economics, Faculty of Management and Economics, University of Sistan and Baluchestan, Zahedan, Iran.

2 Department of Economics, Faculty of Economics and Management, University of Sistan and Baluchestan, Zahedan, Iran

Abstract

According to the macroeconomic literature, the type of exchange rate regimes has an impact on the impact of different policies on macroeconomic variables. Accordingly, in this study, the effect of external shocks including oil shock, external inflation shock and exchange rate shock on employment in three types of floating, fixed and managed floating exchange rate regimes was investigated and analyzed using dynamic stochastic general equilibrium (DSGE) model. The model included households, firms, government, monetary policymakers, and the external sector. The results of the impulse response functions (IRF) show that the effect of the oil shock on employment shows that the effect of this shock on employment in all three exchange rate systems was positive and caused to increase the employment. The positive effect of the foreign inflation shock on employment in the fixed exchange rate system was greater than that of the floating and managed floating exchange rate systems. Also, the effect of the exchange rate shock on employment in the fixed exchange rate system was positive and increased employment, but in the managed floating exchange rate system and the floating exchange rate system, this effect was negative and decreased the employment.

Keywords

References

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International Journal of Business and Development Studies
Volume 17, Issue 2
October 2025
Pages 153-179

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