1- Professor of Economics, Faculty of Economics, University of Tehran, Tehran, Iran
2- Assistant Professor, Department of Monetary and Foreign Exchange Policy Studies, Monetary and Banking Research Institute, Central Bank of Iran, Tehran, Iran
3- (Corresponding Author), Researcher, Monetary and Banking Research Institute, Central Bank of Iran, Tehran, Iran ,Alitavassoli1994@gmail.com
2- Assistant Professor, Department of Monetary and Foreign Exchange Policy Studies, Monetary and Banking Research Institute, Central Bank of Iran, Tehran, Iran
3- (Corresponding Author), Researcher, Monetary and Banking Research Institute, Central Bank of Iran, Tehran, Iran ,
Abstract: (29 Views)
Government budget imbalance and liquidity growth are among the most important structural challenges facing the Iranian economy and are closely interconnected. This study investigates the asymmetric effects of the government budget balance on liquidity growth in Iran over the period 1989–2024 using the Nonlinear Autoregressive Distributed Lag (NARDL) model. This approach allows the decomposition of positive and negative changes in the budget balance, enabling an examination of the asymmetric response of liquidity growth to improvements and deteriorations in the government budget balance in both the short run and the long run. The control variables include real oil revenues, the free-market exchange rate, and economic growth. The bounds test confirms the existence of a long-run relationship among the variables. The estimation results indicate that deterioration in the government budget balance (movement toward a larger budget deficit) has a positive and statistically significant effect on liquidity growth in both the short run and the long run, whereas improvement in the government budget balance (movement toward a smaller deficit or a budget surplus) has a negative and statistically significant effect. However, the Wald test confirms the presence of asymmetric effects of the government budget balance on liquidity growth in both the short run and the long run. The findings further reveal that the impact of deterioration in the budget balance on liquidity growth is substantially stronger than the impact of improvement, as reflected by the larger absolute value of the long-run coefficient for the positive component (0.468) relative to the negative component (−0.392), suggesting considerable persistence in the fiscal adjustment process. Moreover, real oil revenues and the exchange rate exert positive effects on liquidity growth, while economic growth has a negative effect. The error correction coefficient (−0.684) indicates a relatively rapid adjustment toward the long-run equilibrium. The findings imply that controlling liquidity growth in Iran cannot be achieved solely through monetary policy instruments; rather, it requires sustainable fiscal reforms, reduced dependence on oil revenues, tighter control of current government expenditures, greater transparency in budget financing mechanisms, and stronger coordination between fiscal and monetary policies. Given the confirmed asymmetric effects, preventing the emergence of new fiscal imbalances should be prioritized, as the monetary consequences of fiscal deterioration are stronger and materialize more rapidly than the effects associated with fiscal improvement.
Type of Study: Research |
Subject:
economic development, regional economics and growth
Received: Aug 17 2026 | Accepted: May 31 2026
Received: Aug 17 2026 | Accepted: May 31 2026
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