The Effects of Monetary and Fiscal Policy Shocks on the Industry Sector of Iran’s Economy: SVAR Approach over the Period 2004-2017

In comparison with other productive sectors of economy, the growth of the industry has become one of the most essential approaches to economic development. This study explores the effects of monetary & fiscal policy shocks on production, employment and wages in the industry sector of Iran’s economy over the period 2004 - 2017. In this research, using time series data and econometrics techniques – particularly structural VAR models (SVAR) – the effects of such shocks are examined in three scenarios, each of them contains one of the aforementioned indices in the industry sector. The results show that among all variables pertaining to monetary & fiscal policy shocks, only positive shocks in government spending increases output in the industry sector during the period, and interest rate shocks has negative effect on output in the sector. On the other hand, in the long run, the major changes in the manufacturing production in the sector are explained by the variable itself and interest rates. The positive shocks of the interest rate have reduced employment in the industry sector, and in the long run, the greatest changes in this variable are explained by government expenditures and interest rates. The results of this study also demonstrate that the positive shock in money supply and interest rates leads to an increase in the wage index in the sector, and in the long run, these two variables explain the majority of wage changes in the industry sector.