---

The government of Iran has faced with budget deficits during 1979 – 2010, which has been financed mainly through money creation. Theoretically, the impacts of budget deficit and inflationary tax on macroeconomy are very controversial, so that both decrease and increase in consumption, investment, net exports and total expenditure have been supported by empirical researches. Using structural cointegrating vector autoregressive, this paper investigates the impacts of inflationary finance on the demand side of Iran’s economy during mentioned period. Budget deficit is defined as the difference between operating budget deficit (minus net operating balance) and capital balance surplus, or net lending (net acquisition of nonfinancial assets). The results show that both operating budget deficit and net lending have positive impacts on consumption, investment and net imports in the short run. So changes in the demand side have not necessarily same orientation with increase or decrease in budget deficits, but the source of change in budget deficit determines its effects. Reducing budget deficits through positive shock to net lending and a policy of increasing operating budget deficit have similar effects. Furthermore, the results show that the operating budget deficit has no effect on demand components in the long run. The complementarity of inflationary tax and financial repression is confirmed in both short run and long run. In addition, the results indicate that an increase in operating budget deficit and/or net lending induce more inflationary tax and financial repression. Although the budget deficit has no effect on demand side in the long run, but its two outcomes -inflationary tax and financial repression- have opposite effects on the consumption, investment and net imports in both short run and long run.
 

---

Dependency of Iranian Economy on oil revenues has provided conditions for imposing further sanctions on Iran. One way for Iran to get rid of sanctions is to sell its oil in currencies other than US dollar. In this regard, this article evaluates the risks for Iran if it, in selling oil, substitutes US dollar with currencies of its oil importing countries. We firstly apply Autoregressive Integrated Moving Average (ARIMA) and Self-Exciting Threshold Autoregressive (SETAR) models on Yuan and Rupee data for the period of 1990:01-2019:05 as well as on Euro data for the period of 1999:01-2019:05 and then based on the estimated models, forecast losses and gains for the period of 2019:06-2021:12 if Iran sells oil to China, India and Europe and receive payments respectively in Yuan, Rupee and Euro. Our forecasts indicate that selling oil to India and China and receiving oil revenue in Rupee and Yuan respectively will significantly decrease value of oil exports in range of 5-23 percent due to very likely devaluation of these currencies vs. the US dollar. Therefore, Iran must firstly use in its oil transaction relevant diplomacy with its oil importing countries, requesting them to share in risks of devaluation of their currencies vs. US dollar. Secondly, as a particular example, this article shows that political decisions may bring in economic consequences for the country. Therefore, Iranian authorities are expected to consider economic consequences of their political decisions more seriously and with sufficient transparency.