Testing Fiscal Reaction Function in Iran:AnApplication of Nonlinear Dickey-Fuller (NDF) Test

Ahmad Jafari Samimi, Saeed Karimi Petanlar () and Jalal Montazeri Shoorekchali ()
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Saeed Karimi Petanlar: Department of Economics, University of Mazandaran, Mazandaran, Iran.
Jalal Montazeri Shoorekchali: Department of Economics, University of Mazandaran, Mazandaran, Iran.

Iranian Economic Review (IER), 2017, vol. 21, issue 3, 567-581

Abstract: Thispaper is to convincethe usage of the nonlinear unit root tests when dealingwitha nonlinear model.To do so,the stationary test forvariables in a model titles“Fiscal Reaction Function in Iran”has been applied according to both the ordinary andthe Nonlinear Dickey-Fuller (NDF)tests.Results showthatwhilevariables under investigation are stationary in a nonlinear form, augmented Dickey-Fuller test indicatestendency to fail and reject the null hypothesis of a unit root in the presence of nonlinear dynamics.Therefore based onthe results of Nonlinear Dickey-Fuller (NDF),the paperestimates thefiscal reaction function (FRF) in Iran. The estimated nonlinear regression supportsa threshold behaviorof two regimes inapplyingthe fiscal reaction. Finally, findings confirmthat fiscal policyin Iran is countercyclicalthoughnot sensitivein orderto react to accumulation of the government debt.

Keywords: Unit Root Test; Nonlinear Dickey-Fuller (NDF) Test; STR Model; Fiscal Reaction Function; Iran. (search for similar items in EconPapers)
Date: 2017
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