To Investigation the Relationship between Monetary, Fiscal Policy and Economic Growth in Iran: Autoregressive Distributed Lag Approach to Cointegration

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.