The Effect of Government Expenditure Financing (Printing Money or Issuing Bonds) on Macroeconomic Variables: A Dynamic Stochastic General Equilibrium Approach

Document Type : Original Article

Authors

1 Assistant Professor, Department of Islamic Economics, Faculty of Economic and Administrative Sciences, University of Qom

2 دانشیار، اقتصاد، دانشگاه مفید، قم، قم، ایران.

3 استادیار، موسسه مطالعات و پژوهش‌های بازرگانی، تهران، ایران.

Abstract

This study examines the macroeconomic effects of financing government expenditure shocks through money creation versus bond issuance, using data from 1989–2023. A dynamic stochastic general equilibrium (DSGE) model was employed to analyze the shocks. The results indicate that inflationary effects dissipate more rapidly when deficits are financed by bond issuance compared to money printing. Both financing methods, however, reduce household consumption (due to inflationary pressure and lower purchasing power) and yield limited positive output effects. The findings suggest that policymakers should prioritize supply-side policies—such as enhancing productivity and income—over monetary or bond financing. Such an approach could improve tax revenues through economic growth while minimizing adverse macroeconomic impacts.
The findings suggest that policymakers should prioritize supply-side policies—such as enhancing productivity and income—over monetary or bond financing. Such an approach could improve tax revenues through economic growth while minimizing adverse macroeconomic impacts.
The findings suggest that policymakers should prioritize supply-side policies—such as enhancing productivity and income—over monetary or bond financing. Such an approach could improve tax revenues through economic growth while minimizing adverse macroeconomic impacts.

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