Consequences of government decisions in relationship to deficits and surpluses of budget and money volume on the stock price index of Tehran Stock Exchange

Abstract

The purpose of this study is to investigate the relationship between government deficits and surpluses of budget volatility and money volume volatility with Tehran’s stock price index volatility. The data used in this study is the total price index of Tehran Stock Exchange and fiscal policies of governments and monetary policies of central bank, including deficits and surpluses of budget and money volume as a seasonal period (1996 - 2008). For describing long-term relationships between variables VAR model is used and for investigating this relationship the effect of macroeconomic variables namely interest rate, consumer price index, house price index on the Stock Exchange index are considered. Estimation results show that changes in stock price index have a positive relationship with the money volume and a positive relationship with government deficits and surpluses of budget.

Keywords: Budget Deficits, Budget Surpluses, Money volume, Interest Rates