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

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 used data for this research is amount of price index of stock and information of government’s financial policies and central bank’s monetary policy, 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 (CPM), house price index on the index of stock exchange 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.