REASSESSING THE EFFECT OF FISCAL AND MONETARY POLICIES IN IRAN: THE ST. LOUIS EQUATION REVISITED

The purpose of this study is to observe the effect of fiscal and monetary policy actions on the Iranian economy. The famous St. Louis equation, an econometric model with lagged independent variables, is the key model for this study. Interestingly, the findings are converse to what scholars found when examining Western countries, especially the United States. With regard to Iran¡¯s case, monetary policy is much less effective than fiscal policy in stimulating permanent economic growth. It is suggested that government interference is the reason. Furthermore, these findings support the equation¡¯s general validity and its application, due to its parsimonious construction.