Abstract
Problem statement: It is important for policy makers to find affect of monetary and fiscal policy on economic growth and to know how those impacts on growth to present a effective policies. Approach: We apply the bounds testing (ARDL) approach and to cointegration which is more appropriate for estimation in small sample studies. The data span for the study is from 1960-2006, the empirical results found a cointegration relations between Growth, monetary policy and fiscal policy in Iran. Results: The results indicated the impact of Exchange rate and inflation on growth was negative, government expenditure was found to have significant positive impact on growth. Conclusion: According to results for a sustainable economic growth in Iran, policy makers must try to decrease inflation rate and exchange rate also to find an equilibrium point for government expenditure in futures.
Highlights
Economic growth has received much attention among economists
On the other hand over the past decade, Iranian economy has experienced an unstable conditions such as high inflation, high rate of unemployment due to variety monetary and fiscal policy, this study investigates the effect those policies on economic growth (Barro, 1997; Tranzi, 1980)
Econometric methodology: This study discusses the properties of time series and the econometric methodology used to examination of monetary policy and fiscal policy and growth in Iran
Summary
Economic growth has received much attention among economists. Classical studies estimate that economic growth is largely linked to labor and capital as factors of production. The emergence of the endogenous growth theory has encouraged specialists to question the role of other factors in explaining the economic growth phenomenon. Economists and other analysts generally agree that fiscal and monetary policy actions taken by the policy makers has an important impact on the economy. On the other hand over the past decade, Iranian economy has experienced an unstable conditions such as high inflation, high rate of unemployment due to variety monetary and fiscal policy, this study investigates the effect those policies on economic growth (Barro, 1997; Tranzi, 1980)
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