Document Type : Research Paper

Authors

• Ali Rezazadeh
• Shahab Jahangiri
• Farouq Mahmoudi Razgeh

Urmia University

Abstract

This study’s primary objective is to examine the effect of financial stress shocks on economic uncertainty in Iran during the period 1991:2-2022:1 within the framework the nonlinear TVAR. based on the threshold tests and the moving average variable of financial stress with one lag was calculated as the threshold variable in three models and based on the threshold variable, the optimal lag of the TVAR model of financial stress with two lag was calculated as the threshold variable in first and second models, but in third model with one lag.

Also, by determining the threshold value of 24.689% in the first model with the dependent variable of the industrial production logarithm difference, the threshold value of 24.689% in the second model with the dependent variable of CPI and the threshold value of -61.223% in the third model with the dependent variable of the money volume logarithm difference, the two-regime TVAR model was considered as the optimal model for estimation.

The estimation of the TVAR model with the financial stress threshold variable and the extraction of impulse response functions indicate that in the regime of low financial stress, an increase in financial stress leads to an increase in industrial production, a decrease in inflation and an increase in the money volume, that is, in a low financial stress, economic uncertainty decreases. In the regime of high financial stress, the results show that the increase in financial stress leads to a decrease in industrial production, an increase in inflation and a decrease in the money volume, that is, in a high financial stress, economic uncertainty increases. According to the results, it can be said that in different financial conditions, financial stress has a different effect on economic uncertainty in Iran.

Keywords

• financial stress
• economic uncertainty
• non-linear TVAR approach

Main Subjects

• Macroeconomics