Credit and Fiscal Multipliers in Iran: Evidence from Disaggregated Gross Domestic Product (GDP) data
1- Monetary and Banking Research Institute , zhalezarei@gmail.com
2- Monetary and Banking Research Institute
2- Monetary and Banking Research Institute
Abstract: (375 Views)
Extended abstract
Introduction
Few empirical studies have been done to determine the amount of the fiscal policy multiplier in oil exporting countries in general and Iran in particular. Most of these studies estimated the multiplier of fiscal policy during economic cycles. It seems that the estimation of credit and fiscal multipliers simultaneously is necessary for Iran's economy. Because it is assumed that credit and fiscal policy can complement each other to achieve economic targets.
This article evaluates the effects of fiscal and credit policy on Iran's GDP growth. For this purpose, the fiscal (government spending) and credit (debt of the private sector and government companies and institutions to banks and non-banking credit institutions) multipliers have been estimated for the period of 1400-1357 with annual frequency.
Methodology
In this research, the Credit and Fiscal Multipliers are estimated both separately and simultaneously by referring to the study of Chen et al. (2021), which is the extended model of Nakamura and Stinson (2014).
Results
The results of estimating the multiplier of fiscal and credit policy separately showed that the fiscal multiplier (3.324) is bigger compared to the credit multiplier (2.1495). The comparison of these two multipliers show that the multiplier of the fiscal policy is greater than the credit policy, which means that the fiscal policy has been more effective on economic growth.
Based on results obtained from the simultaneous estimation of the fiscal and credit policy multipliers show that both coefficients have become smaller compared to the model that is estimated separately, which means that there is a positive correlation between the growth of credit and the growth of government expenditures. These results are also consistent with the study of Chen et al. (2021).
Also, the fiscal and credit multipliers have been calculated in the sub-sectors of GDP including industry and mining, agriculture, services and oil.
The results of the estimation of the model for the sub-sectors of the Gross Domestic Product show that the fiscal policy had the greatest impact on the growth of the oil sector and the least impact on the agriculture sector, which can indicate the allocation of more government expenditures, especially its capital expenditures, to the oil sector, while the agricultural sector in Iran's economy mainly has a private structure. But in the credit policy sector, the multiplier of this policy is larger in the two sectors of services and industries and mining compared to other sectors, and it means that the credit policy has a greater effect on the growth of the services sector, industries and mining compared to the agriculture and oil sector. To evaluate this issue more precisely, in another part of this study, the variable of debt of the private sector and government companies and institutions to banks and non-bank credit institutions is divided into two variables: the debt of the private sector to banks and non-bank credit institutions and the debt of government companies and institutions to banks. And non-bank credit institutions were also separated.
The results of the estimation of fiscal and credit multiplier for the private sector showed that the credits paid to the private sector had a greater effect on the growth of the two sectors of industries and mining and services. However, the credits paid for the sector of companies and government institutions (the debt of companies and government institutions to banks and non-bank credit institutions) to the oil sector not only did not cause the growth of this sector, but the multiplier of this policy was negative. Also, the credit multiplier of companies and government institutions has not been significant for the sectors of industries and mining, agriculture and services.
Conclusion
Introduction
Few empirical studies have been done to determine the amount of the fiscal policy multiplier in oil exporting countries in general and Iran in particular. Most of these studies estimated the multiplier of fiscal policy during economic cycles. It seems that the estimation of credit and fiscal multipliers simultaneously is necessary for Iran's economy. Because it is assumed that credit and fiscal policy can complement each other to achieve economic targets.
This article evaluates the effects of fiscal and credit policy on Iran's GDP growth. For this purpose, the fiscal (government spending) and credit (debt of the private sector and government companies and institutions to banks and non-banking credit institutions) multipliers have been estimated for the period of 1400-1357 with annual frequency.
Methodology
In this research, the Credit and Fiscal Multipliers are estimated both separately and simultaneously by referring to the study of Chen et al. (2021), which is the extended model of Nakamura and Stinson (2014).
Results
The results of estimating the multiplier of fiscal and credit policy separately showed that the fiscal multiplier (3.324) is bigger compared to the credit multiplier (2.1495). The comparison of these two multipliers show that the multiplier of the fiscal policy is greater than the credit policy, which means that the fiscal policy has been more effective on economic growth.
Based on results obtained from the simultaneous estimation of the fiscal and credit policy multipliers show that both coefficients have become smaller compared to the model that is estimated separately, which means that there is a positive correlation between the growth of credit and the growth of government expenditures. These results are also consistent with the study of Chen et al. (2021).
Also, the fiscal and credit multipliers have been calculated in the sub-sectors of GDP including industry and mining, agriculture, services and oil.
The results of the estimation of the model for the sub-sectors of the Gross Domestic Product show that the fiscal policy had the greatest impact on the growth of the oil sector and the least impact on the agriculture sector, which can indicate the allocation of more government expenditures, especially its capital expenditures, to the oil sector, while the agricultural sector in Iran's economy mainly has a private structure. But in the credit policy sector, the multiplier of this policy is larger in the two sectors of services and industries and mining compared to other sectors, and it means that the credit policy has a greater effect on the growth of the services sector, industries and mining compared to the agriculture and oil sector. To evaluate this issue more precisely, in another part of this study, the variable of debt of the private sector and government companies and institutions to banks and non-bank credit institutions is divided into two variables: the debt of the private sector to banks and non-bank credit institutions and the debt of government companies and institutions to banks. And non-bank credit institutions were also separated.
The results of the estimation of fiscal and credit multiplier for the private sector showed that the credits paid to the private sector had a greater effect on the growth of the two sectors of industries and mining and services. However, the credits paid for the sector of companies and government institutions (the debt of companies and government institutions to banks and non-bank credit institutions) to the oil sector not only did not cause the growth of this sector, but the multiplier of this policy was negative. Also, the credit multiplier of companies and government institutions has not been significant for the sectors of industries and mining, agriculture and services.
Conclusion
In conclusion, the results of the estimation of the model for the sub-sectors of the GDP show that the fiscal policy had the greatest effect on the growth of the oil sector and the least on the agricultural sector, while the credit multiplier in the two sectors of services and industry and Mining have been bigger compared to the other sectors. Overall, the results of this study show that the effects of credit policy are lower compared to the effects of fiscal policy on economic growth. Also, the estimation results of the model with "time-varying coefficients" during the period of 1400-1357 show that credit has not been able to have the same effect on economic growth as government expenditures in any period.
Therefore, it seems that the most important concern of the monetary policy maker to stimulate economic growth in different sectors should not the amount of loan and credit, but supervising the allocation of these funds.
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