Using the Induced Response Function to Measure and Analyze the Impact of Fiscal Policy Shocks on Some Macroeconomic Variables

Abstract

Purpose: The purpose of this research is to use the induced response function to measure and analyze the reality of the general budget and the trade balance and the impact of the flexible fiscal policy on some macroeconomic variables.

Theoretical framework:  The public finances after 2003 in Iraq were oriented towards consumerism, far from the orientations and objectives of economic policy, through the increase in commercial expenditures at the expense of investment expenditures, in contrast to the increase in the volume of imports of goods and services with the dominance of oil exports over the volume of total exports, and these factors Together, they made the flexible fiscal policy unable to achieve its goals, foremost of which is economic stability.

Design/methodology/approach:  The study starts from the hypothesis. The fiscal policy shocks were deliberately created by the government as part of strategic plans that serve its policy, philosophy, and goals it seeks, or as preventive plans against undesirable events, or may occur within treatment plans in response to certain pressures. To achieve the objectives of the study and to prove or refute the mentioned hypothesis, the research relied on the descriptive analysis method To reach the required results. Depending on the period from 2003 to 2018 (Iraq is a case study).

Findings:  The shock that was occurring in the financial policy tools were fabricated by the decision-makers to meet the needs of the security side, which was reflected in its shadows on the increase in current spending resulting from the wages and salaries system and allocations directed to the security system to achieve stability and control the security situation, in addition to the political repercussions that increased the level of employment or Operation to achieve other goals.

Research, Practical & Social implications:  Future studies can look at measuring and analyzing the impact of fiscal policy shocks on macroeconomic variables or their repercussions on economic, social, and political policies.

Originality/value:  This study contributes to the literature related to fiscal policy by analyzing the results of the impact of financial shocks on some macroeconomic variables, and provides a practical and applied perception of the role played by the fiscal policy methodology in Iraq.