Authors : Mohammad Jafari, Shahram Fattahi and Mehdi Khodaei
Abstract: This study attempted to calculate the government’s fiscal policy index in the Iranian economy using the quarterly data from 1988-2012 in a model consisting of a combination of the Factor-Augmented Vector Autoregressive (FAVAR) and the Time-Varying Parameter (TVP) models. In this modeling, the variables of GDP growth, investment growth, inflation, exchange rate changes, private consumption expenditure growth and the government’s fiscal policy entered the model as latent variables. Based on the results of the study, it was found that the proposed model led to better accuracy in modeling the Iranian fiscal policy index compared to the two-stage FAVAR Model proposed by Doz and the Principal Component Analysis (PCA) Model.
Mohammad Jafari, Shahram Fattahi and Mehdi Khodaei, 2016. Calculation of Government’s Fiscal Policy Index in TVP-FAVAR Models. Research Journal of Applied Sciences, 11: 1513-1516.