The Effect of Oil Revenue Shocks on Government Expenditure and Liquidity in Iran Economy

Abstract

Oil revenue can play an important role in the economy of Iran. Oil revenues are the main source of government expenditure and exports. On average about 60 percent of government revenue and about 80 percent of Iran’s export income comes from oil and gas. Because of the importance of oil income shocks on macroeconomic variables such as economic growth, government expenditure, investment and liquidity, in this paper these effects have been investigated. We use quarterly data from central bank of the Islamic republic of Iran for the period of 1990-2010 and the method of vector auto regressive model (VAR) has been used. The results indicate that oil revenue shocks have major effect on these macroeconomic variables.

Keywords

• oil revenue- shocks- government expenditure-liquidity- vector auto regressive model (VAR)