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The Role of Oil Revenue Shocks in Iranian Economy, A TVP- VAR Approach

The Role of Oil Revenue Shocks in Iranian Economy, A TVP- VAR Approach

n this paper, we analyze the effects of oil revenue shocks on different sectors of Iranian economy. We use quarterly data of Iranian economy from 1988:2 to 2011:1 to analyze a time varying parameter VAR model with Bayesian method. The results show that in late 1980s and early 1990s, the positive effects of oil revenue were mostly emerged in industrial and oil sectors, having almost no effect on services sector and negative effect on agricultural sector. In 2000s, oil revenue is relatively less effective in industrial sector, while more effective in agricultural and services sectors.
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Dutch Disease, Rentier State, and Resource Curse: A Characteristic Triangle and Ultra Challenge in the Iranian Economy

Dutch Disease, Rentier State, and Resource Curse: A Characteristic Triangle and Ultra Challenge in the Iranian Economy

One Symptom of Dutch Disease is the increase in the share of government expenditure in oil revenues. Here we investigate the trend of this variable. It is noted that this index has major fluctuations and is highly dependent on oil incomes. Hence, as the Iranian public budget is mainly dependent on the oil revenue, the trend of macro variables would be unstable in principle. In the high price condition of oil revenue, the GDP generally increases. The outcome, however, depends on the direction of the factor movement. If the new income is used in productive capital formation framework, it would be promising. If new income is used, however, for current expenditure, there are no efficient outlooks for the future of the economy. In the Iranian economy, the major part of resource rent is utilized for current expenditures. As figure (6) indicates the current expenditures include a great part of new income. In this figure GT is a total payment of government, GO is share of government expenditure in oil income, GC is Constructional payment and YO is Oil income. Another difficulty in the Iranian economy, which is again related to DRR, is the huge role of government and her crowding out effect on private sector activities. This is also another symptom of Dutch Disease on one hand and bad governance on the other (Nily et al., 2008). Ultimately Iranian economy is still striving with Dutch Disease, is facing with rentier state and the resource curse,
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Production Subsidies Elimination on Iranian Economy (Applying CGE Model)

Production Subsidies Elimination on Iranian Economy (Applying CGE Model)

elimination of subsidies remedy distorted prices, this study peruses the effect of subsidies elimination on Iranian economy. Holland et al, (2007) attempted to predict the effect of increased energy prices on U.S. agricultural economy in a study for the department of agriculture. Results showed that sectors that were highly energy dependent, an increase in energy price would cause cost growth and loss of competitive advantage. This research suggested that the growth of energy price can be compensated by an improvement in efficiency of technology and replacement with more efficient technology in energy. In 2010, Lin and Jiang analyzed the energy subsidies reform by using general equilibrium in China. The results showed that a reduction in subsidies, have significant effects on energy demand and has a negative impact on macroeconomic variables(Lin and Jiang, 2010).
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The Effect of Oil Income on Real Exchange Rate in Iranian Economy

The Effect of Oil Income on Real Exchange Rate in Iranian Economy

This paper investigates the effect of oil income on real exchange rate defined in Iranian economy from 1981 to 2012. This study uses Unit Root Tests, Cointegration techniques, Engle-Granger test, Vector Error Correction Model (VECM). The main findings of this paper are: (i) long run relationship exists between the oil income and Real Exchange Rate (REXR). (ii) The real exchange rate is an important variable to the oil income and oil price, and devaluation will improve the income growth rate of Iran in the long run. (iii) Unilateral causality is found among the variables of the model. As implication, in order to achieve the desired effects on oil income, Iran should depend on policy that focusing on the variable of real exchange rate. The results show that there is a long run co-integration relation between oil income and real exchange rate.
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Stock Market Bubbles and Business Cycles: A DSGE Model for the Iranian Economy

Stock Market Bubbles and Business Cycles: A DSGE Model for the Iranian Economy

This paper contributes to the literature different from Ikeda’s study in several aspects. First, we employ quarterly Iranian data, a small economy with oil export, which is subject to oil price shocks frequently. Second, In order to study the role of money in economy, we apply “Money in Utility” approach that looks more plausible to utilize for studying the Iranian economy. Third, in addition to the TFP shock, the monetary policy shock, the government spending shock, the sentiment shock such as study by Ikeda (2013), we study the oil income shock. Fourth, we consider the CBI's behavior different from Taylor Rule. Fifth, this paper uses different specifications for balancing government budget, which are financed through lump-sum taxation to households, oil income and issuing money. Sixth, this paper sets up a calibrated model. Our results reveal a close relation between moments of variables in the model and moments of realized data. Therefore, this model can help us to analysis the effect of stock market bubbles on macroeconomic variables in economy.
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Dynamic Relationship Between Macroeconomic Instability and Private Investment in the Iranian Economy

Dynamic Relationship Between Macroeconomic Instability and Private Investment in the Iranian Economy

This paper investigates the relationship between macroeconomic instability and private investment of the Iranian economy. The study uses a trivariate VAR(2)-GARCH(1,1)-in-Mean with diagonal BEKK approach to proxied inflation and exchange rate uncertainties as the main indicators of macroeconomic instability. Moreover, Bounds testing approach to level relationship applied to investigate the long-run relationship between macroeconomic instability and private investment. By taking the structural breaks into account, results of the paper reveal that there are mean spillovers between inflation, exchange rate and private investment. There also is a negative effect of macroeconomic instability on private investment over the period of study, 1988:1-2010:4. These results support Pindyck (1982, 1988, 1991), Caballero (1991), Ferderer (1993a), Caballero and Pindyck (1996).
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A Note on the Post Revolution Iranian Economy and the Banking Sector

A Note on the Post Revolution Iranian Economy and the Banking Sector

Abstract This note provides an analysis of Iranian economy in its post-revolution era with special emphasis on the country’s banking sector and discusses the reasons for Iran’s failure i[r]

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Study of the Relationship between Inflation Rate and Bank Interest Rate in the Iranian Economy

Study of the Relationship between Inflation Rate and Bank Interest Rate in the Iranian Economy

be one digit. Some experts believe that by lowering the bank interest rate, the finished cost of goods and services decreases, and secondly, investments and therefore production increase, both of which will lead to lower inflation and provide sustainable employment. Opponents, on the other hand, are concerned about the negative effects of lowering interest rates without lowering inflation and see the basic condition for nominal interest rate reducing inflation rates, and hence people's inflation expectations and eventually relative positivity of nominal interest rate. Since the results of the law of the rationalize interest rate of banking facilities are directly related to the priming and latency effects of two bank interest rates and inflation rate, the present study first examined the relationship direction between inflation rate and interest rate using Granger causality test. In this regard, the findings of the Granger causality test showed that the causality direction is from the inflation rate to the bank interest rate. Then in the second step based on the research literature besides the inflation variable other variables were considered as independent variables in the model and the final functional form of the factors affecting the interest rate for the period of 1978-2018 in the framework of the Autoregressive Distributed Lag method (ARDL) estimated. Modeling results of ARDL model showed that inflation rate, legal deposit ratio, exchange rate changes, and land price index have a positive and significant effect on interest rate in the short and long run; How ever, the effect of the economic growth rate on the interest rate has been only confirmed in the long run. The results also indicate that if an unexpected shock enters a bank interest rate variable, it will take approximately three periods before the effects of the shock and the economy return to their original equilibrium. The results of this study are in line with the results of Khajeh Mohammadlou and Khodaveisi (2017), Mahdavi Mazdeh et al. (2019), Kanwal et al. (2014), Arbanovsky (2017) and Lee & Warner (2018). According to the findings of the present study, it seems that the opposition's view of reducing the bank interest rate can be confirmed; Therefore, it can be said that Fisher's theory holds true for the Iranian economy and policymakers should be aware that lowering the bank interest rate only in the long run and in the light of the gradual decline in the inflation rate will have positive consequences for the economy. In this regard, the central bank can concentrate on inflation control in
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Investigating the relationship between privatization and information efficiency, regime switch and structural failure in the Iranian economy

Investigating the relationship between privatization and information efficiency, regime switch and structural failure in the Iranian economy

According to the data of the sample under study, which was from the beginning of 2000 in relation to Tehran Stock Exchange index, the sixth row of the above table (total of 9 time positions), it will be possible to examine the effect of privatization process in Iran on regime change in the estimated Markov switching GARCH model. In the second regime, as a regime that is more likely to stay in it than other regimes, most of the regime's transmission possibilities are more than 50% even after the record date of the events listed in Table 7, so the process of approval and implementation of privatization in the Iranian economy has led tothe change of the regime in the estimated model.
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Trade-based technology transfer and Its Impact on the Iranian Economy: Using a CGE model

Trade-based technology transfer and Its Impact on the Iranian Economy: Using a CGE model

The purpose of this study has been to investigate quantitatively the possibilities and effects of technology transfer through the imports of intermediate goods from developed to developing countries with the main emphasize on Iranian economy. For this purpose we have used a CGE model. The results show that a hypothetical technology improvement in intermediate goods industries of advanced trade partner will have positive effects in productivity improvement of Iran through its intermediate imports. Our findings show that technology transfer embodied in Iran’s imports of intermediate goods leads to increase in outputs and decrease in prices. Factors such as absorptive capacity, structural similarity and effectiveness were contributed to these spillover effects of technological improvements in Iran. Despite positive spillover effects of technology imports, its extent, however, was limited mainly because of relatively small shares and fluctuations of intermediate imports. These results indicate that Iran has high potentiality for increasing its imports of intermediated goods.
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Factors Affecting The Non-oil Exports In Iranian Economy

Factors Affecting The Non-oil Exports In Iranian Economy

7- H.R. Shoraka and S. Safari (1999), "A Survey of Effects of Export on Economic Sectors Growth in Iran, Journal of Pajoheshhai Bazargani, No. 6 8- H. Taghavi and A.R. Nakhjavani (2002), "Growth of non-oil Export in Iranian Economy", Political and Economic Attala, at, vol. 16, No. 171-172 9- H. Shahrestani and M. Mirzaeinejad (2003), "The relation between export and economic growth", Journal of Economic and Management, vol. 18, No. 73 (Iran)

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Business Cycle Features In The Iranian Economy

Business Cycle Features In The Iranian Economy

As is mentioned earlier in section 3, the oil sector plays an important role in the Iranian economy. Roughly, it accounts for 15% of total real output with an annual growth rate of 3%. In addition, oil revenue is the most important source of revenue for the Iranian government. Table 9 provides some information on the composition of government income for the period of 1998 to 2005. On average, 57% of government expenditure has been financed by oil revenue. In comparison to oil revenue, the average tax income is 32% in this period. This indicates the dependency of government finances on oil revenue. When considering the fact that the government sector represents about 85% of the national economy of Iran (including government agencies and companies), the importance of oil revenue becomes much more evident.
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The Straw that Could Break the Camel's Back: An Economic Analysis of Subsidies in the Iranian Economy

The Straw that Could Break the Camel's Back: An Economic Analysis of Subsidies in the Iranian Economy

To understand the effect of these subsidies on the economy, remember that they can be considered as a negative tax. Since they are mostly paid for specific goods and services, they act much the same way as a negative sales tax. That is, they lower the price of these goods and services to consumers. The main effect of subsidies, therefore, is an increase in consumption. Indeed, between 1979 and 1995, per capita private consumption rose by about 10% while, during the same period, real per capita GDP showed a 5% decline. This is not to say that the increase in per capita consumption was due to subsidies. On the contrary, the amount of subsidies compared with aggregate private consumption is too small to allow the detection of a statistically significant relation between the two. Yet for a country that needs savings, encouraging consumption even if its effect is negligible cannot be defended. Iran is suffering a 20% annual rate of inflation, which is demand driven, and the central bank has been incapable of curbing it. An increase in consumption will not bode well for controlling demand and inflation.
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The Effect of Green Taxes on Labor Productivity in the Iranian Economy

The Effect of Green Taxes on Labor Productivity in the Iranian Economy

This paper has inquired the effect of green taxes with an emphasis on the Porter hypothesis in Iran using annual data for the period 1990-2015 applying autoregressive distributed lag[r]

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Oil Price Uncertainty in the Iranian Economy

Oil Price Uncertainty in the Iranian Economy

In this paper, we move the empirical literature forward by examining the direct effects of oil price uncertainty on real economic activity as well as the response of real GDP growth to oil price shocks by using annually data for economy of Iran. The model is based on a structural VAR that is modified to accommodate GARCH-in-mean errors, as detailed in Engle & Kroner (1995), Grier et al. (2004), Shields et al. (2005), and Elder & Serletis (2010). As a measure of uncertainty about the impending real oil price, we utilize the conditional standard deviation of the forecast error for the change in the real price of oil.
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After the nuclear deal : research on the EU Iran gas relationship in the post sanctions era

After the nuclear deal : research on the EU Iran gas relationship in the post sanctions era

all foreign economic influential factors in the long run, including western sanctions and worldwide financial crisis. 406 According to Iran, there are Western efforts to damage the Iranian economy with the purpose to overthrow the Iranian regime. 407 According to Iran’s current supreme leader Khamenei, a strong Iranian economy is important for Iran’s overall security. 408 Through the Resistance Economy doctrine, Iran wants to minimize the damage that is caused by countries that impose sanctions on Iran and Iran wants to be less dependent on those countries that impose sanctions on Iran. 409 Through the Resistance Economy doctrine, Iranian economic policy-making is totally a part of a national security doctrine. 410 In accordance with the Resistance Economy doctrine, Iran wants to use energy trade for the political purposes within the framework of the Resistance Economy doctrine. 411 So, gaining a higher absolute level of economic welfare is not a goal in itself in the case of Iran,
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The External Determinants of Inflation: The Case of Iran

The External Determinants of Inflation: The Case of Iran

relationship between inflation and its determinants for periods from 1959 to 2002 used Vector Auto Regressive method with spread lags. Results showed that production, import price index, liquidity and exchange rate are the variables affecting inflation in the Iranian economy. The model estimates the long run effects of a percentage change in each of these variables on the general price level equal to - 0.37, 0.5, 0.34 and 0.27.

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The Impact of Targeted Subsidies plan on Combination of Energy Consumption in Iran: The Case of Non-Metal Mineral Manufacturing Industries

The Impact of Targeted Subsidies plan on Combination of Energy Consumption in Iran: The Case of Non-Metal Mineral Manufacturing Industries

When subsidies reform plan became serious, various studies have attempted to analyze the impact of this economic decision on Iranian economy through different approaches. However, the impact of elimination or reforming subsidies has long been studied in other countries. For example, Hope and Singh (1995) in their study entitled “The increase of energy carrier prices in developing countries: a case study of Turkey, Colombia, Zimbabwe, Indonesia, Ghana, and Malaysia” investigated the impact of increased energy price on variables of poverty, inflation, growth, national income, and industrial competitiveness during 1980-1990. Their results in manufacturing industrial sector indicated that except for energy-consuming industries, in the case of increased energy prices, most industries have had sufficient flexibility for substituting and notwithstanding the price of energy carriers. Their study also showed that the impact of increased prices was less than other changes.
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A Computable General Equilibrium Model of International Sanctions

A Computable General Equilibrium Model of International Sanctions

a positive report by the International Atomic Energy Agency (IAEA) that Iran has complied with the terms of the JCPOA and that all outstanding issues between Iran and the IAEA have been resolved, the JCPOA calls for the lifting of economic sanctions which had been imposed by the US, the EU and other countries on Iran’s economy in an attempt to discourage the government of Iran from continuing to engage in the development of a nuclear weapons capability. In this paper we analyzed the welfare impact of these comprehensive economic sanctions on Iran’s economy. We incorporated endogenous taxes into a global Computable General Equilibrium (CGE) model to sim- ulate the effects of these sanctions and the stockpiling of oil by the Iranian government. The GTAP8 dataset was augmented with information from the Statistical Centre of Iran (SCI) to disaggregate private and public consumption and income in Iran between the government in Iran and 10 rural and 10 urban household groups to highlight the welfare effects of sanctions not only on the Iranian economy in general but also on urban and rural households disaggregated by income level. We also adopted a non-standard closure by endogenizing the aggregate public and external sectors in Iran, so that the CGE model would more realistically simulate the effects of sanctions, since the primary target of international sanctions was the behaviour of the government of Iran.
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The review of financial repression policies and banking system in Iran

The review of financial repression policies and banking system in Iran

Considering the raised issues, continuing the policies such as determination of banking interest rate by using ordered method much lower than its equilibrium rate and providing additional liquidity to meet the additional demand for financial resources ultimately will failure to achieve the desired objectives because of inflationary effects. On the other hand, liberalization of interest rate and removal of the limit on allocating credits among economic sectors, due to their heavy costs in short-term cannot be an appropriate policy for the current situation of Iranian economy. Therefore, this question may arise that what is the solution to release the banking sector from its involved problems?
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