Selecting the Government Financial Rule for Reducing the Negative Effects of the Oil Sanctions on the Selected Macroeconomic Variables in Iran: Adopting the Stock-Flow Consistent Model

Abstract

Financial rules can prevent budget fluctuations by regularizing the financial relations of the public sector. This research analyzes four financial rules in the framework of the Stock-Flow Consistent model. These rules are government spending as a constant ratio of GDP, government budget deficit as a constant ratio of GDP, government debt as a constant ratio of GDP, and a balanced budget. The simulation results of the research model for 50 years (2011-2061) show that the choice of financial rule can differ depending on the government's goals, the desired time horizon, and the economic conditions. Among the examined rules, government spending as a fixed ratio of GDP is optimal in the condition of oil sanctions, since it reduces the negative effects of oil sanctions on the selected macroeconomic variables of the model. Considering the importance of choosing a financial rule in accordance with changing economic conditions, such as an oil sanction, it is suggested that the rules should be designed considering the requirements of the country's economy and the goals of the policymaker, and get revised with changes in economic conditions or changes in the priority of goals.

Keywords

• oil sanction
• financial rules
• government budget deficit
• balance sheet matrix
• transaction matrix
• stock-flow consistent model