Somayeh Shokravi; Mohsen Khezri
Abstract
In this study, to determine the exact effect of financial development on economic growth, we use quarterly data for 1988 to 2013 and apply factor-augmented vector autoregressive (FAVAR) model in combination with time-varying parameters model (TVP) for the case of Iranian economy. Variables used ...
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In this study, to determine the exact effect of financial development on economic growth, we use quarterly data for 1988 to 2013 and apply factor-augmented vector autoregressive (FAVAR) model in combination with time-varying parameters model (TVP) for the case of Iranian economy. Variables used in this study include economic growth, ratio of government spending to GDP (as an index of government size), economic openness index (the ratio of exports and imports to GDP), inflation and financial development index (as an unobservable variable). Based on our results, the effect of financial development index on economic growth in the period under consideration is positive, an increase in government size leads to lower economic growth, in a way that the government size effect is more intense at times that oil revenues increase. In addition, the effect of inflation on economic growth is positive. Finally, the degree of trade openness on economic growth has a positive effect.
Mohsen Khezri; Bahram Sahabi; Kazem Yavari; Hassan Heydari
Volume 15, Issue 57 , July 2015, , Pages 193-228
Abstract
Given the importance of inflation in Iran economy, scrutiny of inflation determinants is important .according to various studies, evaluation of determinants of inflation using standard VAR model, may lead to wrong conclusions and this is due to omitted variables bias in VAR model. For example, the problem ...
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Given the importance of inflation in Iran economy, scrutiny of inflation determinants is important .according to various studies, evaluation of determinants of inflation using standard VAR model, may lead to wrong conclusions and this is due to omitted variables bias in VAR model. For example, the problem of price puzzle in the empirical literature is one of these results. In this study, for a more accurate assessment of determinants of inflation in Iranian economy and forecasting inflation, instead of using FAVAR model with constant coefficients, we have employed TVP-FAVAR models and inflation has been modeled. In this model, the variables of GDP growth, growth of the monetary base, inflation, exchange rates and interest rates are considered as the main variables, and to estimate the non-observable variables of speculation section return, variables in the overall classification are modeled. Based on the results, the relationship between the variables change over time and conditions prevailing in the economy is effective on the influence of model variables on each other.