Comparison of the Spillover Effects of Monetary and Fiscal Policies of China and Iran on Iran’s Macroeconomic Variables

Saeedeh Ahmadi, Seyed Ehsan Hosseinidoust and Abolfazl Shahabadi
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Saeedeh Ahmadi: Ph.D. Student of Economics, Faculty of Economics and Social Sciences, Bu-Ali Sina University, Hamedan, Iran
Seyed Ehsan Hosseinidoust: Assistant Professor, Department of Economics, Faculty of Economic and Social Sciences, Bu-Ali Sina University, Hamedan, Iran
Abolfazl Shahabadi: Professor of Economics, Department of Economics, Faculty of Social Science and Economics, Alzahra University, Tehran, Iran

Quarterly Journal of Applied Theories of Economics, 2026, vol. 13, issue 2, 141-168

Abstract: Changes in China’s monetary and fiscal policies can significantly affect Iran’s macroeconomic variables through channels such as exchange rate fluctuations, capital flows, and market expectations. On the other hand, Iran, as a developing economy dependent on oil revenues, is also influenced by its own domestic monetary and fiscal policies, which affect real variables such as exports, imports, employment, and investment. Accordingly, this study aims to examine and compare the spillover effects of monetary and fiscal policies of China and Iran on Iran’s macroeconomic variables. This research investigates the spillover effects of monetary and fiscal policies of China and Iran on Iran’s macroeconomic variables using a Time-Varying Parameter Vector Autoregression (TVP-VAR) approach, based on monthly data over the period 1999–2022. The variables used for Iran in the model 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 are also considered as indicators of monetary and fiscal policy. The results indicate that China’s policy shocks have a limited, short-term impact on the Iranian economy. In contrast, Iran’s domestic policy shocks, particularly changes in the money supply and total government expenditure, are the main drivers of economic fluctuations in the country. Money supply growth in Iran is the most persistent and influential variable in transmitting fluctuations across economic sectors. Increases in the money supply are associated with inflationary pressures, reduced purchasing power, exchange rate instability, and weaker employment.

Keywords: Money supply growth; Monetary policy; Fiscal policy; Total government expenditure (search for similar items in EconPapers)
JEL-codes: E50 E52 F38 H30 H50 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ris:qjatoe:023076

DOI: 10.22034/ecoj.2026.69900.3467

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