The Effects of Fiscal Policy on Macroeconomic Variables of Iran

 

Volume 2, Issue 2, Number 5, Pages 78-96, Published Online April 20, 2014

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Author(s):

Reza Heidari Kamalabadi , Seyed Ali Hosseini Yekani and Mohammad Ali Roshanfar

ABSTRACT:

Fiscal policy influences the real economy through changes of its variables. Fiscal policy shocks are important for policy makers, because of their crucial effects on macroeconomic variables. So, in this study the response of macroeconomic variables to fiscal policy shocks in the Iran’s economy is investigated. The Vector Autoregressive model (VAR) is applied for this investigation utilizing the quarterly time series data during 1990-2008. The results of this study revealed that: 1- The response of money supply to government revenues and current expenditures is positive and this response to constructive expenditures in is negative, 2- The response of the monetary base to tax revenues and current expenditures is positive and to oil revenue and constructive expenditures is positive at first and then is negative, 3- The response of the exchange rate to tax revenue and constructive expenditures shocks is negative and is on balanced in the long run. But, the response of exchange rate to oil revenue and current expenditures is on balanced in the short run. 4- The response of gross domestic product to tax revenues and constructive expenditures is negative and is on a certain distance of balance position. This response to oil revenue and current expenditures is positive in short run and negative in long run. 5- The response of private consumption to tax revenues was positive and is on balanced in the long run. While, the response of private consumption is negative to the oil revenue and constructive expenditures and is placed in a certain distance of balance in long run. Also, the results of variance decomposition illustrated that fiscal policy hasn’t considerable effect in the short run variations of these variables.

KEYWORDS:

fiscal policy shocks, VAR model, government revenue, government expenditures

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