Document Type : Research Paper

Authors

• khadijeh hassanzadeh ¹
• sosan etemadnia ²
• Kioumars Shahbazi ³

¹ Urmia University

² Econometrics doctoral student of Urmia University

³ Department of Economics , Faculty of Economics and Management , Urmia University

Abstract

Financial instability causes uncertainty and lack of transparency in the market and the decision-making process, which ultimately leads to a reduction in investment and economic growth. Also, Economic shocks create changes in investors' expectations. So, the study uses seasonal data analysis from 1991:4 to 2021:1 to identify financial shocks and their impact on macroeconomic variables such as Gross Domestic Product (GDP), debt-to-GDP ratio, and financial instability using the Threshold Vector Auto regression (TVAR) model. The main findings of this study are as follows: First, fiscal policies (debt-to-GDP ratio) reduce GDP. Second, positive shocks from financial instability lead to a decrease in GDP and a decrease in the debt-to-GDP ratio. Third, the results indicate that in the first regime of positive fiscal policy shock (increase in debt-to-GDP ratio), financial instability increases, but in the second regime, positive fiscal policy shock reduces financial instability.

Keywords

• Financial instability
• production
• threshold vector autoregression model
• financial policy

Main Subjects

• Monetary economy