Abstract:

This paper studies impact of government expenditures shocks on Gross Domestic Product (GDP), personal consumption, trade balance and effective exchange rate. To the purpose, time series data of Iranian macroeconomic variables were used covering from 1976 to 2007. Vector autoregressive (VAR) model, forecast error variance decomposition and momentary reaction functions were used in order to study the impact of government expenditures shocks on macroeconomic variables of Iranian economy. Extracted results from the estimate of VAR model and analyses of forecast error variance decomposition showed that: positive shocks of the government expenditures increase GDP and personal consumption but decrease trade balance. Impact of government expenditures positive shocks decrease effective exchange rate only in first year then government expenditures shocks had positive but very little impact on effective exchange rate

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