The Effects of Government Expenditure Shocks on Gross Domestic Product (GDP) in Iran

Because of the importance of the unpredictable changes in government expenditure on gross domestic production, this paper tries to evaluate the effects of the government expenditure shocks on gross domestic product in Iran. To do this, at the first stage, government expenditure shocks are driven by the Hodrick-Prescott Filter. Then using these shocks, considered model will be estimated. The method of model estimation is auto-regressive distributed lag (ARDL). The effect of the lag of gross domestic product on current GDP is positive and significant. While the second lag of this variable on current GDP is negative. Only the third lag of government expenditure shocks has the significant effect on current GDP. That is, if the government expenditure shocks happen, it will affect the GDP after three years. According to the results, the coefficient of this variable is negative. So there is a converse relationship between government expenditure shock and gross domestic product. If there will be a one-unit shock in government expenditure, after three periods (year), gross domestic product will decrease 0.84 units.