خلاصة:
overnment budget deficit has been one of the topical issues in the country’s historical economic problems. The budget deficit-inflationrelationship is not always obvious and it is different between countries.Since government of Iran has consistently run its economy with a budget deficit and high inflation, this paper re-investigate the deficit-inflationnexus in the Iranian economy by using quarterly data for the period of1990:1-2007:4. To cary out a test of no structural break against an unknown number of breaks in the Iranian macroeconomic variables, we use the endogenously determined multiple break test developed by Bai &Perron (2003). As, there is a structural break in the time series date, we use Perron(1990) unit root test to test of stationarity. We employ Bounds test approach to cointegration proposed by Pesaran et al. (2001) toinvestigate the long-run relationship between budget deficit and inflation. The key findings from the empirical studies investigating the relationship between the budget deficit and inflation indicated strong evidencetowards supporting a significant and positive relationship between budget deficit and inflation in Iran. At the end, we obtained volatility of budget deficit by using GARCH model, and showed that, volatility of budgetdeficit has a positive effect on the inflation too
ملخص الجهاز:
Since government of Iran has consistently run its economy with a budget deficit and high inflation, this paper re-investigate the deficit-inflationnexus in the Iranian economy by using quarterly data for the period of1990:1-2007:4.
Alavirad and Athawale (2005) investigate the impact of budget deficit on inflation in Iran, by employing the ARDL model and based on the annual data from 1960 to 1999.
Lozamo (2008) evidence of the causal long-term relationship between budget deficit, money growth and inflation in Colombia, using the vector error correction model with quarterly data.
Tabel 2: ADF , PP, NP and KPSS tests for unit root: Statistics (L) def lag inf lag gdp lag oer lag τ (ADF) 2.
We employ Cosum , Cusum of squares, Chow and Bai & Perron (2003) tests to investigate a presence of structural break in the series.
Table 3: Resalts of structural break tests Series Criterion def inf gdp oer Cusum / × × × SupF × × × / SupF Conditional × × × × UDmax-WDmax × × / / BIC-LWZ / / / / Sequential / / / / and × show the presence and no-presence of structural break respectively.
Perron uses a modified Dickey-Fuller (DF) unit root tests that includes dummy variables to account for one known, or exogenous structural break.
Table 4: Perron (1990) unit root test level series model Break point Dummy variable Test statistic Critical value 5% result def (1) 1377q1 Du77q1,dt77q1 -8.
(2001) to investigate the long-run relationship between budget deficit and inflation.