Document Type : Research Paper
Authors
1
Department of Economics, Faculty of Economic and Social Sciences, Bu-Ali Sina University, Hamedan, Iran
2
Academic Staff of Bu Ali Sina University
3
Department of Economics, Faculty of Social Sciences and Economics, Alzahra University, Tehran
10.22034/ecoj.2026.69900.3467
Abstract
Changes in China's monetary and fiscal policies can have significant effects on Iran's macroeconomic variables through changes in exchange rates, capital flows, and market expectations. On the other hand, Iran, as a developing economy dependent on oil revenues, also influences real variables such as exports, imports, employment, and investment through its domestic monetary and fiscal policies. This research investigates and compares the spillover effects of China's and Iran's monetary and fiscal policies on Iran's macroeconomic variables using a time-varying parameter vector autoregression (TVP-VAR) approach and monthly data from 1999-2022. The variables used in the model for Iran include the real effective exchange rate (REXCH), employment (EMP), exports of goods and services (EXP), imports (IMP), gross fixed capital formation (GFCF), money supply growth (M2), and total government expenditure (EXPEN). For both China and Iran, money supply growth and total government expenditure were considered as indicators of monetary and fiscal policy. The findings indicate that the impact of China's policy shocks on Iran's economy has been limited and short-term. In contrast, Iran's domestic policy shocks, especially liquidity growth and total government expenditure, are considered the main sources of the country's economic fluctuations. Iran's liquidity growth has been the most persistent and influential variable in transmitting fluctuations to other sectors, and increased liquidity is accompanied by inflationary pressure, reduced purchasing power, exchange rate instability, and weakened employment.
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