Investigating the Dominance of Fiscal Policy over Monetary Policy in Iran's Economy with Fiscal Theory of the Price Level (FTPL)

Document Type : Scientific paper

Authors

1 Shahid Beheshti University of Tehran

2 phd student of economics, allameh tabatabaei university, tehran, iran

Abstract

This research examines the role of financial policies in Iran using quantitative approaches and investigates the relative importance of financial policies in strengthening economic growth. In this regard, with the help of the Financial Theory of the Price Level (FTPL), this study addresses the issue of which political regime in Iran is placed in the group of "fiscal dominance" or "monetary dominance" and whether the primary government deficit is adjusted independently of real debts or not. In the next step, the current research investigates to what extent inflation is affected by financial deficits. Such an analysis can be indirect proof of the type of political regime in Iran, as well as an examination of how inflation will react to financial shocks. Financial dominance can have wide dimensions that the policymaker should pay attention to. Based on the results obtained in the econometric model of the research, it can be suggested that the two variables of money volume and budget surplus will have a major contribution to inflation changes. According to the above findings, it can be stated that Iran's economy is placed in the regime group with financial policy dominance because the monetary policymaker considers himself committed to the needs of the financial policymaker. Also, the results of this research show the important role of the budget deficit in determining the exogenousness of money volume in Iran, whose effect will be stable in Iran's economy for the next eight periods.

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Macroeconomics Research Letter
Volume 17, Issue 33
April 2022
Pages 61-86

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History

  • Receive Date: 31 October 2022
  • Revise Date: 01 January 2023
  • Accept Date: 04 January 2023

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