The Impact of Monetary Policy on Triple Deficit in Iran: An Application of System Dynamic Approach

Document Type : Original Article

Authors

1 Ph.D. Student in Economics, Department of Economics, University of Mazandaran, Iran

2 Professor in Economics, Department of Economics, University of Mazandaran, Iran

Abstract

An approach to the effect of the budget deficit on the current account deficit has always been the focus of economists. In the macroeconomics literature, there are two approaches to investigate this relationship: the Keynesian approach and the Ricardian approach. The Keynesian approach accepts the existence of a relationship between the budget deficit and the current account deficit, while the Ricardian approach rejects this relationship. By examining the studies conducted in the field of Twin deficits, this study examines the hypothesis of Twin deficits and Triple deficits, as well as the impact of monetary policies on Triple deficits. In order to achieve the mentioned goal, the System Dynamics method and data from the period of 1999-2020 were used. The results of the study indicate the establishment of twin and triple deficit. The trend of the capital account shows that this account is always facing a deficit. However, the domestic savings gap does not seem to be fully compensated by foreign capital. The imbalance in the balance of payments aggravates the created budget deficit and can create an accelerated cycle of budget deficit. Also, in this study, the effect of monetary policy on triple deficits was also investigated. The results of the study show that using the monetary policy does not affect the formation of twin deficits and triple deficits

Keywords

References

Kohensal, M.R., & Alizadeh, P. (2014). Investigating the double deficit hypothesis in Iran's economy: the threshold vector autoregression approach of two regimes. Quarterly journal of applied theories of economics. 2(3), 73-92. (In Persian)
Tadaon, F., Rajabi, M., Samti, M., & Ranjbar, H. (2019). Simultaneous control of budget deficit and trade deficit in the economy of Iran with the aim of economic growth. Researches on economic growth and development. 11(41), 83-97. (In Persian)
Khani, F., Jafari Samimi, A., Tehranchian, A. & Ehsani, M. (2021). The effects of the money market on the gold market with a systemic dynamics approach. Economic modeling, 54(5), 1-19. (In Persian)
Mehrara, M., Gholami, A., & Ahmadi, S. M. M. (2022). Testing the validity of the triple deficit hypothesis in Iran with the presence of the degree of trade openness. Economic researches of Iran. 27(70), 135-169. (In Persian)
Abell, J. (1990). Twin Deficits during the 1980s: An Empirical Investigation. Journal of Mac-roeconomics. 12(1), 81–96.
Afonso, A., Huart, F., Jalles, J. T., & Stanek, P. (2022). Twin Deficits Revisited: a role for fiscal institutions?. Journal of International Money and Finance, 121, 102506.
Anoruo,E.,&Ramchander,S.(1998).Current account and fiscal deficits: Evidence from five developing economies of Asia. Journal of Asian Economics, 9(3),487-501.
Marco, A., Roberto, P.,  &Sergio R.(2024). Twin deficit: dose the composition of the fiscal adjustment matter for correcting external imbalances?. International Monetary Fund, eISBN: 9798400271168.
Bahmani-Oskooee, M., & Payesteh, S. (1993). Budget deficits and the value of the dollar: An application of cointegration and error-correction modeling. Journal of Macroeconomics. 15(4), 661-677.
Bartolini, L., & Labiri, A. (2006). Twin deficits, twenty years’ latter. Current Issues in Economics and Finance, 12 (7), 1-7.
Bernheim, B. D. (1988). Budget Deficits and the Balance of Trade,” in Lawrence H. Sum-mers (ed.). Tax Policy and the Economy. MIT Press: Cambridge, 2, 1–31.
Cebula, R., & Koch, J. (1989). Federal budget deficits, interest rates, and international capital flows. The Quarterly Review of Economics and Finance. 36(4), 121–126.
Chen, D. Y. (2007). Effects of monetary policy on the twin deficits. The quarterly review of economics and finance, 47(2), 279-292.
Cheong,T,. & Tuck, R. (2014).  Fiscal Deficit, Trade Deficit, and Financial Account Deficit: Triple Deficits Hypothesis with the U.S. Experience. discussion paper 06/1. ISSN1441. department of Economics. Monash university.
Eichengreen, B. (2010). Imbalances in the Euro Area. University of California, Berkeley manuscript.
Evans, P. (1985). Do large deficits produce high interest rates?. American Economic Review, 75(1), 68–87.
Fausten, D. K. (1989). Current and capital account interdependence. Journal of Post Keynesian Economic. 12(2), 273-292.
Frankel, J. (2006). The twin deficits jeopardize US hegemony?. Journal of Policy Modeling. 28(6), 653–663.
Sara, F. (2021). An Empirical Investigation of the Validity of Triple Deficits Hypothesis in Egypt. Scientific Journal for Economic & Commerce.
Goodfriend, M. (2002). The phases of U.S. monetary policy 1987–2001. Economic quarterly, 21(4), 1–18.
Hatemi-j, A., & Shukur, G. (2002). Multivariate-based causality tests of twin deficits in the US. Journal of Applied Statistics, 29(6), 817-824.
Helmy, Heba E. (2018). The twin deficit hypothesis in Egypt. Journal of Policy Modeling. 40(2), 328-349.
Holmes, M. J. (2011). Threshold co-integration and the short-run dynamics of twin deficit behavior. Research in Economics, 65(3), 271–277.
Hussain, I., Hayat, U., Alam, M. S., & Khan, U. (2024). A dynamic analysis of the twin-deficit hypothesis: The case of a developing country. Asia-Pacific Financial Markets, 31(1), 25-52.
Karras, G.(2019). Are “twin deficits” asymmetric? Evidence on government budget and current account balances, 1870–2013. International Economics,158(C). 12-24.
Kearney, C., & Monadjemi, M. (1990). Fiscal policy and current account performance: International evidence on the twin deficits. Journal of Macroeconomics, 12(2), 197-219.
Lau, E., & Tang, T. C. (2009). Twin deficits in Cambodia: an empirical study. Economics Bulletin, 29(4), 2789-2800.
Laubach, T. (2003). New Evidence on the interest rate effects of budget deficits and debt. Finance and Economics, (12)1, 1–21.
Magazzino, C. (2012). Fiscal policy, consumption and current account in the European countries. Economics Bulletin, 32(2), 1330-1344.
Meadows, D.(1980). The unavoidable a priori. In Jorgen Randers, editor, Elements of the System Dynamics Method. Pegasus Communications.
Miller, S. M., & Russek, F.S. (1989). Are the twin deficits really related?. Contemporary Policy Issues, 7(4), 91-115.
Milne, E. (1977). The Fiscal Approach to the Balance of Payments. Economic Notes, 6(2), 889–908.
Miteza, I. (2012). Fiscal deficits, current deficits and investment: a panel causality framework of 20 OECD Countries. Applied Econometrics and International Development, 12(1), 6-19.
Murthy, N., & Phillips, J. (1996). The relationship between budget deficits and capital inflows: Further econometric evidence. The Quarterly Review of Economics and Finance, 36(4), 279–292
Nelson, E. (2004). Budget deficits and interest rates. In Monetary Trends. Federal Reserve Bank of St. Louis, March. p. 1.
Normandin, M. (1999).Budget deficit persistence and the twin deficits hypothesis. Journal of International Economics. 49(1),171-193.
Sterman, J. (2002). Dynamics Systems Thinking and Modeling for a ComplexWorld. The McGraw-Hill Companies. New York.
Tang, T. C., & Fausten, D. K. (2012). Current and capital account interdependence: an empirical test. International Journal of Business and Society. 13(3), 229-244.
Yamaguchi, K. (2003). Principle of accounting system dynamics,modeling corporate financial  statements. In Proceedings of the 21st International Conference of the System Dynamics Society, New York, System Dynamics Society.
 

Files

Share

How to cite

Statistics