Analysis of the Effects of oil price shocks on monetary variables and government expenditure

This paper examines the effect of oil price shocks on macroeconomic variables. For this purpose, a model with 3 pairs of behavioral equations (export, import and government expenditure) and 14 definitions Equation is constructed. An oil price shock is applied in two different scenarios and their effects on the variables is examined. In the event of a temporary oil shock shown by a 50% increase in oil prices in year 1384, the monetary base and liquidity in the initial year is increased and in the second and third years decreased less than the baseline, finally at the three years, the variable moves near the baseline. Thus a temporary oil shock for the first year only increases the monetary base and liquidity, and the effect vanishes after three years. The impact of oil shocks on government expenditure is positive and government expenditure increases. The effects of a long-term oil shock at a scale of 50% annual increase in oil price for 1384 to 1389, leads to increase in monetary base and liquidity over the baseline for the entire period. This means the long-term upward shocks in oil prices have permanent effects on monetary variables that lasts over the entire period.