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 ...
Read More
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.
Financial Economics
Gholamhossein Golarzi; Mahnaz Khorasani
Abstract
The exchange rate, as a fundamental variable, alongside other economic variables, has a significant impact on stock returns. Therefore, this study has investigated the effects of the exchange rate and its fluctuations on the pharmaceutical industry's stock returns through linear and nonlinear models ...
Read More
The exchange rate, as a fundamental variable, alongside other economic variables, has a significant impact on stock returns. Therefore, this study has investigated the effects of the exchange rate and its fluctuations on the pharmaceutical industry's stock returns through linear and nonlinear models during the years 2005 to 2021. In this research, first, the exchange rate fluctuations were modeled using the GARCH model. Then, the symmetrical and asymmetrical effects of the exchange rate and its fluctuations, along with the macroeconomic control variables including the healthcare consumer price index, oil price, and industry-specific control variables including asset return ratio, asset turnover ratio, and debt ratio as well as the COVID-19 dummy variable, were investigated on the return of the pharmaceutical industry stock using both linear ARDL and nonlinear NARDL models. The study shows that in both the short and long term, the impact of the exchange rate on pharmaceutical industry stock returns is greater than the impact of exchange rate fluctuations. Additionally, negative shocks of the exchange rate and its fluctuations have a negative relationship with the pharmaceutical industry's stock returns, while positive shocks of the exchange rate and its fluctuations have a positive effect on the pharmaceutical industry's stock return. The study's findings suggest that the impact of positive and negative shocks of the exchange rate and its fluctuations have asymmetric effects on the return of pharmaceutical industry stock. Results show that control variables and COVID-19 have significant effects on pharmaceutical industry stock returns in linear and nonlinear models.1.IntroductionPharmaceuticals, as a strategically vital industry, can significantly contribute to a country’s economic growth and the enhancement of public health. However, a major challenge faced by this industry in Iran is its heavy dependence on imported raw materials and essential machinery, with nearly 60% of the required raw materials being sourced through imports. The pharmaceutical sector in Iran is particularly vulnerable to exchange rate fluctuations, given its high dependency on foreign currency. Consequently, the exchange rate and its fluctuations emerge as determining factors influencing the profitability and stock returns of companies operating in this sector. Divergent perspectives exist regarding how exchange rate fluctuations impact stock returns, with some studies asserting a positive correlation, others a negative one, and some maintaining a neutral stance. Since there is no consensus on the precise nature of the relationship between exchange rate fluctuations and stock returns, especially within the pharmaceutical sector, the present research tried to investigate and compare the effects of exchange rate and its fluctuations on stock returns in the pharmaceutical industry.2.Materials and MethodsUsing linear and nonlinear autoregressive distributed lag models (i.e., ARDL and NARDL), the study examined both the symmetrical and asymmetrical effects of exchange rate fluctuations on the return of pharmaceutical industry stocks during 2005 to 2021. The research also considered macroeconomic control variables, including healthcare consumer price index, oil price, COVID–19 dummy variable, and the variables specific to the pharmaceutical industry (e.g., asset return ratios, turnover ratios, and debt ratios). First, the generalized autoregressive conditional heteroskedasticity (GARCH) model was employed to model exchange rate fluctuations. The long-term linear equation for the return of pharmaceutical industry stocks can be defined as follows:(1) Also, the long-term nonlinear equation is defined as follows:(2) 3.Results and DiscussionThe research findings reveal that, in the short-term period and based on the linear ARDL model, the exchange rate significantly affects the return of the pharmaceutical industry stocks, with exchange rate fluctuations also causing a significant negative impact on stock returns. Moreover, the analysis of the long-term coefficient estimates from the linear ARDL model suggests a positive correlation between the exchange rate and pharmaceutical industry stock returns. Consequently, the results imply that an increase in the exchange rate can boost the competitive power and stock returns of pharmaceutical companies. However, in the long run, exchange rate fluctuations can have a detrimental effect due to heightened uncertainty in the stock market, dissuading investors from engaging in this industry. Additionally, the study indicates that an increase in oil prices results in a decrease in pharmaceutical industry returns, as investors seek profits in alternative markets. Inflation, too, negatively affects pharmaceutical industry stock returns, as heightened inflation fosters uncertainty, reducing investor inclination toward pharmaceutical stocks. Furthermore, the research findings highlight that various factors such as pharmaceutical industry asset returns, asset turnover, debt levels, and the dummy variable of COVID–19 positively impact pharmaceutical industry returns.The results obtained from the nonlinear NARDL model showed that both short-term and long-term negative shocks in the exchange rate and its fluctuations significantly decrease the stock returns of the pharmaceutical industry. In contrast, positive shocks in the exchange rate and its fluctuations positively affect the stock returns of the pharmaceutical industry. Hence, it can be concluded that the exchange rate and its fluctuations have an asymmetrical effect on pharmaceutical industry stock returns in Iran. Unlike the linear ARDL model, the results of the nonlinear NARDL model indicated that inflation and debt levels do not exert significant impact on pharmaceutical industry stock returns in the long run. Additionally, impact of oil prices on pharmaceutical industry returns is significantly negative in the long run, while pharmaceutical asset returns, asset turnover, and the dummy variable of COVID–19 contribute to an increase in pharmaceutical industry returns in Iran.4.ConclusionConcerning the importance of the pharmaceutical industry and the influence of the exchange rate on the stock returns in the Iranian stock market, the present research used ARDL and NARDL models to examine both the linear and nonlinear effects of exchange rate and its fluctuations on pharmaceutical industry stock returns during 2005–2021 in Iran. The research results indicated that, in both the short and long term, the impact of exchange rate is more significant than the impact of exchange rate fluctuations on the returns of pharmaceutical industry stocks. According to the findings, negative shocks to the exchange rate and its fluctuations can lead to a decrease in the returns of pharmaceutical industry stocks, while positive shocks result in an increase. The results suggest an asymmetrical impact of positive and negative exchange rate shocks and its fluctuations on pharmaceutical industry stock returns. In both linear and nonlinear models, the control variables of the study, along with the COVID–19 as the dummy variable, have significant impact in on pharmaceutical industry stock returns. In sum, the findings indicated a significant relationship between the exchange rate and its fluctuations and pharmaceutical industry returns in Iran. However, the impact of exchange rate and its fluctuations on pharmaceutical industry proves to be heterogeneous. It is thus recommended that investors take note of the differing results of linear and nonlinear models and the asymmetric effects of variables, utilizing modern financial engineering instruments to implement appropriate risk-hedging strategies against exchange rate fluctuations.
currency
Hassan Tahsili
Abstract
The effect of exchange rate changes on the general level of prices is one of the major issues in macroeconomics and has important results for the monetary policy maker. With respect to these two variables in Iran's economy, modern econometric approaches can provide new insights. In this regard, using ...
Read More
The effect of exchange rate changes on the general level of prices is one of the major issues in macroeconomics and has important results for the monetary policy maker. With respect to these two variables in Iran's economy, modern econometric approaches can provide new insights. In this regard, using the threshold vector autoregressive model, the present study attempts to investigate the nonlinear exchange rate pass-through in Iran during 1369:1 – 1397:4. The results show that pass trough of exchange rate to the general price levels depends on the amount of inflation (inflationary conditions and its threshold). If seasonal inflation exceeds from 5.48%, the exchange rate shocks has lower effect on inflation. The results show that, exchange rate shocks have a severe effect. Due to the lack of inflation targeting policy in the Iran’s economy, the impact of exchange rate shocks on inflation is lower in values below the level of 5.48%. Accordingly, in inflation rates below the threshold, monetary policy has less freedom of action and the goals of reducing inflation and exchange rate policies need to be taken into account simultaneously.
Health Economics
Soheil Roudari; Masoud Homayounifar
Abstract
The present study investigates the effect of coronavirus outbreak and exchange rate and oil price variables on the stock market index using Markov Switching model during the period 1398/11/30 – 1399/03/27. The results show that exchange rate growth has no significant effect in the high regime ...
Read More
The present study investigates the effect of coronavirus outbreak and exchange rate and oil price variables on the stock market index using Markov Switching model during the period 1398/11/30 – 1399/03/27. The results show that exchange rate growth has no significant effect in the high regime of the stock market index and has a negative and significant impact in the low and medium regimes. The growth of oil prices has had a negative and significant effect on all stock market index regimes. Also, in the high regime of the stock market index, the prevalence and increase in the coronavirus cases will lead to a decrease in the stock market index, and on the contrary, in the low regime of the stock market index, the prevalence and increase in the coronavirus cases will increase the stock market index. In the high regime of the stock market index, the coronavirus outbreak can lead to a decrease in the stock market index and the outflow of capital from the stock market and transfer to other parallel markets such as currency and housing can occur, and speculation increases.
International economy
Samira Motaghi; Anahita Saifi; Salah Ebrahimi
Abstract
The aim of this paper was to investigate the relationship between trade openness and inflation in selected developing and developed countries from 1990 to 2017 using a Panel data approach for testing Romer's hypothesis of relationship between inflation index and Trade Openness. The results of the paper ...
Read More
The aim of this paper was to investigate the relationship between trade openness and inflation in selected developing and developed countries from 1990 to 2017 using a Panel data approach for testing Romer's hypothesis of relationship between inflation index and Trade Openness. The results of the paper show that the Romer hypothesis is rejected in both the studied groups (developed and developing). The results showed that the effect of trade openness on inflation rate was positive and significant in both groups. But the impact of trade openness on inflation has been greater in developing countries. The effect of money supply on inflation was positive and significant in both groups. According to other results of this study, GDP had a significant and negative effect on inflation. Also, the exchange rate has not been a determinant of inflation in developed countries but in developing countries it has had a positive effect on inflation.
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 ...
Read More
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.
Habib Morovat; Ali Faridzad
Abstract
Exchange rate is one of the most important factors in open economies. So determining the factors which affect exchange rate behaviors is necessary. In this research we try to analyze the role of extrapolative expectations and chartists in the instability of exchange rate market. We use unofficial nominal ...
Read More
Exchange rate is one of the most important factors in open economies. So determining the factors which affect exchange rate behaviors is necessary. In this research we try to analyze the role of extrapolative expectations and chartists in the instability of exchange rate market. We use unofficial nominal exchange rate data (Rial/Dollar) in weekly, monthly and quarterly horizons (from 1991 to 2015). We use fundamentalists- chartists approach and agent-based model (ABM) for simulation. The results show that when there is instability in market, the weight of chartists is much more than fundamentalists and vice versa. Also we show that chartists gain from this market so they don’t like to leave the market.
Parviz Mohammadzadeh; Hossein Asgharpur; Mohammad Bagher Beheshti; Ali Rezazadeh
Volume 16, Issue 49 , February 2012, , Pages 151-175
Abstract
The main objective of this paper is to examine of monetary approach to exchange rate determination in 14 MENA countries during 1975-2006. For this purpose, panel cointegration technique has been used to test the basic monetary model and flexible price monetary model of exchange rate determination. The ...
Read More
The main objective of this paper is to examine of monetary approach to exchange rate determination in 14 MENA countries during 1975-2006. For this purpose, panel cointegration technique has been used to test the basic monetary model and flexible price monetary model of exchange rate determination. The empirical results indicate that there is a cointegration relationship between variables of basic and flexible price monetary models and therefore the monetary model is able to convincingly explain the exchange rates in MENA Countries. Hence, it could be concluded in the region the parity domestic currency vs. foreign currencies has been affected by mostly the amount of domestic money and increase (decrease) of amount of domestic liquidity leads to devaluation (evaluation) of domestic money. Also, the results show that there is negative significant relationship between exchange rate and output and positive significant relationship with expected inflation rate in Middle East and North Africa countries. This empirical evidence implies that in addition to liquidity, variables such as expected inflation rate and GDP are important in determination of the equilibrium exchange rate in MENA Countries.
Zahra Nasrollahi; Mina Shahviri,
Volume 15, Issue 44 , October 2010, , Pages 199-230
Abstract
Management of Foreign exchange reserves is important for every country. This matter is also of particular interest for Iran as an Oil exporting developing country. This paper designs an optimal portfolio for that part of foreign exchange incomes which is used for investment. Using the data on foreign ...
Read More
Management of Foreign exchange reserves is important for every country. This matter is also of particular interest for Iran as an Oil exporting developing country. This paper designs an optimal portfolio for that part of foreign exchange incomes which is used for investment. Using the data on foreign exchange daily returns, for the period 2000-2008, and applying univariate and multivariate Garch models, we estimate a model which maximizes expected returns subject to a Value-at-Risk constraint. The results are examined using Backtesting, and then the most acceptable model is suggested. The results that the multivariate GARCH model is the most efficient method for selecting the foreign exchange optimal portfolio in Iran.
Mohsen Mehrara; Alireza Abdi
Volume 9, Issue 31 , July 2007, , Pages 1-26
Abstract
This paper studies the impact of Rial's real devaluation and scale variables (domestic and foreign real income) on Iran's trade balance using the Johansen-Juselius and ARDL methods for the period 1338-1383 (1960-2004).
According to co-integration tests results, trade balance variables, ...
Read More
This paper studies the impact of Rial's real devaluation and scale variables (domestic and foreign real income) on Iran's trade balance using the Johansen-Juselius and ARDL methods for the period 1338-1383 (1960-2004).
According to co-integration tests results, trade balance variables, domestic and foreign income, and black market exchange rates are co-integrated indicating a long run equilibrium relationship among them. Moreover, all the long and short run coefficients have expected signs and are stable during the sample period. However, the official exchange rate is not able to explain trade balance fluctuations satisfactorily in this period. The results of co-integration tests reject the null of long run equilibrium relationship among trade balance, scale variables and official exchange rate. The diagnostic tests in the error correction models with official rate imply serious mis specifications as well. The study suggests the need to monitoring the black market rather than official exchange rate.
Reza Nasr Esfahani; Nematollah Akbari; Rasool Bidram
Volume 7, Issue 22 , April 2005, , Pages 43-68
Abstract
In this paper we examine the effects of nominal variables on the GDP gap in Iran. The potential GDP is obtained by Prescott filtering method.
A VAR model is set up & estimated for GDP gap, inflation, market exchange rate growth, and liquidity growth.
The results show that nominal variable ...
Read More
In this paper we examine the effects of nominal variables on the GDP gap in Iran. The potential GDP is obtained by Prescott filtering method.
A VAR model is set up & estimated for GDP gap, inflation, market exchange rate growth, and liquidity growth.
The results show that nominal variable shocks influence the GDP gap in Iran in the same direction. Stability of these shocks indicates their long-run effect on the system. Thus, for economic growth, the economic policy must concentrate on production increases, which would affect the long run production.
Abbas Shakeri
Volume 6, Issue 21 , February 2005, , Pages 23-50
Abstract
The purpose of this paper has been to estimate the impact of price and non-price variables on non-oil exports of Iran. The non-oil exports are considred to be a function of monetary variables, such as the exchange rate, inflation rate, and two non-price variables, as productivity and competitiveness. ...
Read More
The purpose of this paper has been to estimate the impact of price and non-price variables on non-oil exports of Iran. The non-oil exports are considred to be a function of monetary variables, such as the exchange rate, inflation rate, and two non-price variables, as productivity and competitiveness. We use the ARDL technique to estimate the relation. The results indicate that the non-price variables play a significant role in promoting non-oil exports in Iran. Free exchange rate and inflation rate, though had positive sign, are not very important. These findings indicate that in order to increase the non-oil exports, Iran has to remove the constraints on the efficient functioning of price variables and emphasis more on "productivity" and "competitiveness".
