The Asymmetric Impact of Financial Shocks on Price Levels in the Iranian Business Cycles

Document Type : Scientific-research

Authors

1 Assistant Professor of Theoretical Economics, Faculty of Economics, Allameh Tabatabai University

2 Assistant Professor of Business Economics, Faculty of Economics, Allameh Tabatabai University

3 Master of Economics, Allameh Tabatabai University

Abstract

The excessive increase in government spending could lead to instability in economic variables, one of most important of which is price level. But the important question is whether the increasing in government spending have symmetric effects in different situations or not, especially in recession and booms. According to this discussion, the purpose of this study is to investigate the asymmetric effects of fiscal policy shocks on price levels by using seasonal data from 1988 to 2014. In this regard, first, the effects of fiscal policy shocks on price levels are essayed by the SVAR model, and then for investigating asymmetric effects of fiscal policy shocks, we applied the TVAR model. The results from SVAR model indicates that shocks from government spending and tax revenue have positive and negative effect on price level, respectively. On the other hand, results of TVAR model shows that effect of fiscal shocks is asymmetric with respect to the position of business cycles, so that a positive shock from government spending during a boom has a more positive and severe effect on price levels, but during the recession, this effect is less severe. On the other hand, a positive shock from government tax revenues has a negative effect on price levels in both the downturn and the boom, but it is more severe in terms of the impact of the shock on the boom than in the downturn.

Keywords

References

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Journal of Iranian Economic Issues
Volume 6, Issue 2
August 2020
Pages 115-140

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History

  • Receive Date: 12 June 2019
  • Revise Date: 23 August 2019
  • Accept Date: 21 October 2019

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