The Effect of the Government Subsidies Shocks on Real Consumption of Private Sector in Iran

In this paper, we have studied the effects of financial shocks arising from increased government subsidies on real consumption of private sector in Iran, by using Auto - Regressive Distributed Lag (ARDL). Results of the estimated models show that long-term and short-term relationships can be seen between real consumption of private sector and subsidy shocks. According to the research results, under the stag- flation situation which is currently prevailed in Iran’s economy, creating a negative subsidy shock certainly reduces real private sector consumption in the short run. But, given the relatively high adjustment speed obtained from the model, there is a hope that the situation gets resolved in the medium term. Also the effects of these shocks on real private consumption will come close to the status of balance in the long-term.