International Journal of Nonlinear Analysis and Applications

The effects of war and military budget on the fluctuations of macroeconomic variables

Articles in Press

Document Type : Research Paper

Authors

1 Department of Economics, Abarkouh Branch, Islamic Azad University, Abarkouh, Iran

2 Department of Economics, Yazd Branch, Islamic Azad University, Yazd, Iran

10.22075/ijnaa.2024.33084.4921

Abstract

Economic conflicts of interest, international agreements, demarcation, ideological beliefs, etc. have led to differences between countries and even regions, to the extent that numerous wars have occurred in the world from the past until now. Evidence in Iran and other parts of the world speaks of the destructive effects of wars. The present study examines the effects of war on macroeconomic variables in Iran, emphasizing both military and non-military expenditures of the government, within the framework of a DSGE model during the time period from 1991 to 2021. According to the results obtained from the variance decomposition of variables in response to a war shock, it was revealed that this shock explains 69.85% of output fluctuations, 67.83% of consumption fluctuations, 65.81% of investment fluctuations, 70.54% of government expenditure fluctuations, 71.28% of employment fluctuations, and approximately 80% of wage fluctuations. The results of instantaneous response functions indicate the negative response of economic variables including production, consumption, investment, employment and wages and the positive response of government expenditures in response to a war shock.

Keywords

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International Journal of Nonlinear Analysis and Applications

Articles in Press, Corrected Proof
Available Online from 08 November 2024
  • Receive Date: 23 December 2023
  • Accept Date: 27 February 2024