Macroeconomics
Sohail Rudari; Seyyed Hadi Arabi; Sanaz Rahimi Kahkashi
Abstract
The present study aimed to examine the transfer, reception, and the spillover of volatility from March 1982 to September 2022, using the time-varying parameter vector autoregression model based on Barunik-Krehlik (TV-VAR-BK) with monthly frequency. The results indicated that the primary relationship ...
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The present study aimed to examine the transfer, reception, and the spillover of volatility from March 1982 to September 2022, using the time-varying parameter vector autoregression model based on Barunik-Krehlik (TV-VAR-BK) with monthly frequency. The results indicated that the primary relationship among the volatility of the analyzed variables is of long-term nature, with the exchange rate emerging as the dominant factor in explaining the volatility of the examined network. In the short term, liquidity serves as the primary transmitter of volatility to inflation and the exchange rate. However, in the medium and long term, the exchange rate becomes the primary transmitter of volatility to inflation, while liquidity acts as the net receiver of currency volatility. Additionally, the long-term impact of the exchange rate is more pronounced. Failure to control currency volatility can lead to inflation turbulence by transferring volatility to liquidity, underscoring the significance of exchange rate stability in managing liquidity and inflation.IntroductionThe exchange rate is one of the key factors influencing inflation. In addressing the impact of exchange rate volatility, the status of inflation plays a crucial role (Tahsili, 2022). Moreover, assessing the factors influencing the exchange rate stands as one of the most challenging empirical problems in macroeconomics (Williamson, 1994). Since the exchange rate is significant economic indicator in any country, alterations in monetary variables (e.g., liquidity and inflation rates) as well as non-monetary variables can lead to fluctuations and instability in the exchange rate (Amrollahi et al., 2021). The causality of volatility between money and inflation can vary depending on economic conditions (Al-Tajaee, 2019). A deeper understanding of liquidity growth dynamics, inflation, and exchange rates in Iran elucidates the reasons behind high inflation, rapid and continuous liquidity growth, and the impact of exchange rate volatility. Extreme changes in each variable overshadow the others, indicating a complex relationship among exchange rates, inflation, and liquidity. Examining the relationship between the volatility of different assets unveils the phenomenon of volatility spillover, where fluctuations in one component trigger volatility in others. An additional crucial aspect is understanding the modes of transmission, reception, and intensity of the causal relationship among exchange rates, inflation, and liquidity in Iran during different periods. In different years, the mutual influence of these components may have varied based on political, economic conditions, health, and pandemic issues, each of which impacting decision-making concerning exchange rates, inflation, and liquidity as three vital macro-economic components. In this respect, the present study used the time-varying parameter vector autoregression model based on Barunik-Krehlik (TV-VAR-BK) with monthly frequency in order to examine volatility spillover from March 1982 to September 2022 in Iran, providing a new perspective on investigating causality by analyzing the time-frequency volatility among exchange rates, inflation, and liquidity.Materials and MethodsThis study is applied and analytical in terms of its purpose and research method, respectively. The data was sourced from the Economic Accounts Department and the National Accounts of the Central Bank. The TVP-VAR-BK model was employed to analyze the time series among exchange rates, inflation, and liquidity. The TVP-VAR-BK model helped analyze the transmission and reception of volatility of variables across different periods (short-term, medium-term, and long-term). Furthermore, the analysis delved into whether the variables acted as net receivers or net transmitters of volatility.Results and DiscussionThe results showed that, in the short term, liquidity exerted the most significant influence and transmitted volatility to other variables. Notably, the most substantial impact and transmission of volatility by the liquidity occurred in 2013, following the tightening of sanctions on Iran. In the medium and long term, the exchange rate emerged as the most influential factor on other research variables.Examining the causal relationship in the short term, a strong causal connection was identified from liquidity volatility to inflation and the exchange rate. However, no causal relationship was observed between inflation and the exchange rate in the short term. Therefore, in the short term, liquidity could be the primary cause of volatility in inflation and the exchange rate. Failure to control short-term liquidity volatility could lead to severe volatility directly and indirectly within the studied network.Moving to the medium term, the transfer of volatility was predominantly from the exchange rate to liquidity and, to a lesser extent, from liquidity to inflation. In the medium term, the transfer of volatility from the exchange rate to inflation was less pronounced. This suggests that fluctuations in the exchange rate strongly transfer volatility to liquidity in the medium term, and liquidity significantly contributes to the emergence of inflation volatility. The exchange rate, albeit to a minor extent, can directly contribute to the transfer of volatility to inflation. This underscores the dominant role of the exchange rate in the network during the medium term.In the long term, no causal relationship between liquidity and inflation was observed, and there was no causality in the transfer of volatility between inflation and the exchange rate. This implies that factors other than the investigated network can explain inflation volatility in the long term. Although there is causality in the transfer of volatility from the exchange rate to liquidity in the short- and medium-term periods, this causality is stronger in the long term. Hence, while the classical view on liquidity and inflation holds until the medium term, the post-Keynesian view becomes evident in the long term. Overall, the exchange rate stands out as the dominant factor in the investigated network. Without stability in the exchange rate, Iran’s economy shall anticipate the fluctuating growth of liquidity and inflation in the short- and medium-term periods.ConclusionThe primary relationship among the volatility of the examined variables proved to be long-term, with the exchange rate emerging as the dominant factor explaining the volatility within the investigated network. In the short term, liquidity functioned as the net transmitter of volatility to inflation and the exchange rate. However, in the medium and long term, the exchange rate takes on the role of the primary transmitter of volatility, while inflation and liquidity assume the positions of net receivers of currency volatility. Moreover, the impact of the exchange rate was found to be notably stronger. Should exchange rate volatility remain uncontrolled, it has the potential to induce inflation volatility by transferring it to liquidity. This underscores the critical importance of maintaining exchange rate stability for the effective control of liquidity and inflation.
Political economy
Behrouz Sadeghi Amroabadi; Ehsan Kazemi
Abstract
Improving the quality of institutions with development of the country's economic infrastructure can reduce the degree of fiscal policy cycles in developing countries. Therefore, the purpose of this study is to analyze the effects of good governance and political cycles on the liquidity and budget deficit ...
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Improving the quality of institutions with development of the country's economic infrastructure can reduce the degree of fiscal policy cycles in developing countries. Therefore, the purpose of this study is to analyze the effects of good governance and political cycles on the liquidity and budget deficit changes during 1978-2018. The research method is descriptive analytical by using econometric method of the GMM. Data are from the Central Bank of Iran and World Bank site for Iranian Economy. The research results show the effect of good governance on the variables of liquidity and budget deficit changes are negative and significant. Also the interactive effects of good governance and the election dummy variables on the liquidity and budget deficit changes are negative and significant. These results indicate that good governance during the elections can control the budget deficit and liquidity changes, hence to control the business-political cycles, suggest to improve the good governance in Iran.
Mehdi Hajamini
Abstract
During the period 1969-2017, Iranian economy’s inflation rate was on average 19 percent which did not have a downward trend; hence the name chronic moderate inflation. In the present paper, by reviewing 110 theoretical and empirical studies and 83 studies on the Iran’s economy, a meta-analysis ...
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During the period 1969-2017, Iranian economy’s inflation rate was on average 19 percent which did not have a downward trend; hence the name chronic moderate inflation. In the present paper, by reviewing 110 theoretical and empirical studies and 83 studies on the Iran’s economy, a meta-analysis on the role of budget structure for explaining the persistence of the chronic moderate inflation rate of Iran is presented. This analysis shows that the budget structure (deficit, operating deficit, capital surplus, and financing) has been the driving force behind the continual increase in the liquidity as well as the permanent repression of interest rates in the post-revolutionary period. Therefore, change in financial and monetary strategies (and not policies necessarily) is a precondition to control the liquidity and inflation. Accordingly, some budgetary rules are needed to improve the process of decision-making and parliament-government-central bank interactions. In addition, a clear consensus has been reached about the inflationary effects of government budgets in the Iranian economy, so it is recommended that future researches focus on how the new rules can affect interaction between the fiscal and monetary autorities using game theory.
Siab Mamipour; Soghra Jafari; Ziba Sasanian Asl
Abstract
The main purpose of this paper is to investigate the effects of monetary and fiscal policies on the business cycles in the Iranian economy during the period 2004-2016. Markov Switching model has been used with time varying transitional probabilities for the recognition of the business cycle and identifying ...
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The main purpose of this paper is to investigate the effects of monetary and fiscal policies on the business cycles in the Iranian economy during the period 2004-2016. Markov Switching model has been used with time varying transitional probabilities for the recognition of the business cycle and identifying the influencing factors on the probability of staying in a period of recession and boom or the transition from one situation to another. The results of the MSIH(2)-AR(2)[1] model show that both expansionary monetary and fiscal policies increase expansion period, but expansionary monetary policy is more effective in expansionary fiscal policy. During the recession regime, fiscal policy has a greater impact than a monetary policy in the transition from the recession regime. Also, findings show that business cycles in Iranian economy have comovements with changes of oil revenues, but the effect of changes in oil revenues has a different effect on the staying or transition of business cycles. Thus, the increase of oil revenues reduces the probability of staying economic boom regime, but it will increase the transition probability of recession to boom regime. In fact, these results indicate that oil revenues are not managed well during the boom period but there is the relatively good management in the recession regime. [1]- Markov Switching Intercept and Heteroskedasticity terms (2 regimes)-AutoRegressive (2 Lags)
Abdorasoul Sadeghi; Seyed Komail Tayebi
Abstract
Due to the historical importance of inflation in the Iranian economy and its serious effects on the society, the present study has explored the impacts of international sanctions and other effective factors on the inflation rate in Iran during 1981-2014. To this end, this paper has specified an econometric ...
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Due to the historical importance of inflation in the Iranian economy and its serious effects on the society, the present study has explored the impacts of international sanctions and other effective factors on the inflation rate in Iran during 1981-2014. To this end, this paper has specified an econometric model of inflation rate, which has been estimated by the ARDL method using relevant time series data including the above period. The empirical results obtained indicate that the international sanctions have had direct and significant effects on the inflation rate through changes in exchange rate and budget deficit. Additionally, exchange rate, money liquidity and deposit interest rate have had positive and significant effects on the inflation rate, while oil revenues and tax earnings have influenced indirectly and significantly Iran’s inflation rate over the period.
Ezatollah Abbasian; Mahdi Moradpour Oladi; Vahid Abbasiuon
Volume 12, Issue 36 , October 2008, , Pages 135-152
Abstract
This paper examines the influence of macroeconomicvariables on stock market equity valuesin Tehran Stock Exchange Market. We use the Tehran Stock Exchange Market all share price index to represent the stock market and (a) moneysupply, (b) interest rate, (c) consumer price index (as a measure of inflation), ...
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This paper examines the influence of macroeconomicvariables on stock market equity valuesin Tehran Stock Exchange Market. We use the Tehran Stock Exchange Market all share price index to represent the stock market and (a) moneysupply, (b) interest rate, (c) consumer price index (as a measure of inflation), (d) exchangerate and (e) trade balance as macroeconomic variables. We use the data quarterly data for the above variables for the 20 quarterly periods from Farvardin 1377 to Esfand 1384 employinga battery of tests, which include unit roots,cointegration, vector error correction models (VECM), impulse response functions (IRFs) and variancedecompositions (VDCs). These tests examineboth long-run and short-run relationships between the stockmarket index and the economic variables.The VECM analyses provides some support for the argument that the lagged values of macroeconomic variableshave a significant influence on the stock market. Both VDC and IRF analyses reveal thatshocks to economic variables explained onlya minority of the forecast variance error of the market index and the effects do not persist for verylong.
Reza Nasr Esfahani; Kazem Yavari
Volume 5, Issue 16 , October 2003, , Pages 69-99
Abstract
The purpose of this study is to analyze the effects of real and nominal variables in inflation by using a Vector Autoregressive Model (VAR). This model used liquidity growth، exchange rates growth، inflation rate، expected inflation as nominal variable and real output gap as real variable by employing ...
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The purpose of this study is to analyze the effects of real and nominal variables in inflation by using a Vector Autoregressive Model (VAR). This model used liquidity growth، exchange rates growth، inflation rate، expected inflation as nominal variable and real output gap as real variable by employing seasonal data. The results show that the cause of inflation is not just the liquidity growth، the chronic inflation is also related to real variables. The VAR results show that in the short-run، nominal variables such as liquidity growth، and exchange rates do affect inflation rate. In the long run، however، stability of prices depends not only on monetary growth but also on the expected inflation and real output gap. The empirical results indicate that liquidity growth is endogenous and nominal variables are related to real output gap. The paper concludes that it is not enough to rely just on monetary policy to control prices in the Iranian economy and in the long run، real output gap should be reduced.
