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Asymmetric Effects, Markov Switching - Vector Auto Regressive, Exchange Rate Volatility, Economic Growth, Inflation Rate.
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Ehsan Zanganeh *   |
| University of Birjand & University of Birjand |
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Abstract: (24 Views) |
Inflation and exchange rate volatility are two very important categories in the Iranian economy that affect each other and overshadow economic growth in Iran. Different views on the relationship between these variables are common in economic literature. Therefore, investigating this issue is very important for policymaking. In the present study, the causal relationship between exchange rate volatility, economic growth, and inflation rate is investigated with a nonlinear approach in the form of Markov regime change vector autoregression method using monthly data from 2011 to 2024. The results of this study indicate that during boom and bust, there is a two-to-two causal relationship between all three variables, except for the causal relationship from the economic growth rate to the inflation rate. In other words, during boom and bust, there is no causal effect from the economic growth rate to the inflation rate, but inflation has a causal effect on economic growth. During recessions, the variables of economic growth rate, exchange rate fluctuations, and inflation rate have a significant effect on each other in pairs, which indicates the high sensitivity of the variables to each other during recessions and turbulence. Since the asymmetric effect of the aforementioned variables is evident under different regimes, it is recommended that policymakers consider this asymmetric effect in policymaking in order to have a better and more accurate understanding of the implementation effects of their economic policies.
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Article number: 5 |
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Type of Study: Empirical Study |
Subject:
Prices, Business Fluctuations, and Cycles (E3)
Received: 2025/01/5 | Accepted: 2025/08/31 | Published: 2025/09/23
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