Modern Research in Decision Making

The Effect of Government Debt to the Central Bank on the Okan Distress Index in Iran Using Vector Autoregression Modeling

Articles in Press

Document Type : Original Article

Authors

Sina Ghods 1
Karim Bayat 2
Ramin Ghadiri 3

1 Systems Management, Faculty of Management adn Economic , Tarbiat Modarres University, Tehran, Iran,

2 Center for Management Studies and Technology Development, Research Group of Industrial Engineering and Productivity, Tarbiat Modares University, Tehran, Iran.

3 Department of Theoretical Economics, Faculty of Economics, University of Tehran, Tehran, Iran.

Abstract
One of the main issues in Iran’s economy is the government’s debt to the Central Bank, which has been increasing over the years and has exerted destructive effects on the economy.
The purpose of this research is to examine the relationship between “government debt to the Central Bank” and “Okun’s Misery Index” using the Vector Autoregression model, the Engle-Granger cointegration test, and other necessary tests over the period 1979–2025 with EViews software.
The findings show that both variables are stationary of order two, and the Engle-Granger cointegration test confirmed a long-run equilibrium relationship between them. Impulse response functions indicated that a one-standard-deviation positive shock to government debt has a limited short-run effect on the Misery Index, but a positive and increasingly significant effect in the medium and long run. Forecast error variance decomposition reveals that short-run fluctuations in the Misery Index are mainly explained by its own shocks, while the share of government debt shocks rises to approximately 12 percent by the tenth period. Consequently, a one-percent change in government debt leads to a 1.1 percent change in the Misery Index.
These findings not only reveal the causal relationships between the two variables but also provide quantitative insights for constructing policy decision-making models, enabling a shift from intuitive toward model-based and evidence-based decision-making.

Keywords

Government Debt to the Central Bank
Okun Misery Index
Vector Autoregression
Subjects

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