International Economics
Mahdi Hemmati; Ebrahim Hadian; Ali Hussein Samadi; Ahmad Sadraei Javaheri
Abstract
Exchange rate misalignment has involved many world countries. It has profoundly affected the internal and external sectors of the economy. Hence, disclosing the emergence and formation causes of the misalignments is a requisite. Studies on the Iranian economy have mostly evaluated the sanctions’ ...
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Exchange rate misalignment has involved many world countries. It has profoundly affected the internal and external sectors of the economy. Hence, disclosing the emergence and formation causes of the misalignments is a requisite. Studies on the Iranian economy have mostly evaluated the sanctions’ efficacy on macroeconomic variables, involving the economic growth, domestic production, liquidity, exports, imports, oil price, oil revenues, etc. Few studies have evaluated the sanctions’ impact on the foreign exchange market. There is no research work assessing the sanctions’ impact on exchange rate misalignment in Iran. The main purpose of this paper is to estimate the impact of economic sanctions on real effective exchange rate (REER) misalignment in the context of the Iranian economy during the period 1996:1 - 2019:4. In doing so, at first we apply the model designed by Edwards (1989) and Cottani et al. (1990) and using smooth transition regression (STR) to estimate the REER equilibrium and its misalignment. Moreover, factor analysis is used to estimate the sanction indices. Then to analyze the impact of economic sanctions on the REER misalignment a nonlinear autoregressive distributed lag (NARDL) model is employed.The time path of estimated REER misalignment indicates a lot of volatilities during the period of study. The estimated results also show that sanctions significantly affect these volatilities in the short run and long run and thereby increase REER disequilibrium in the Iranian economy.
Majid Maddah; Azadeh Talebbeidokhti
Abstract
Abstract: The aim of international economic sanctions is imposing economic restrictions on target countries. In order to decrease the sanctions negative brunt on citizenry and make it ineffective, government may respond to sanctions through policies such as increasing the supply of public goods. This ...
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Abstract: The aim of international economic sanctions is imposing economic restrictions on target countries. In order to decrease the sanctions negative brunt on citizenry and make it ineffective, government may respond to sanctions through policies such as increasing the supply of public goods. This paper studies the regime changes of government expenditures in Iranian economy in response to economic sanctions using Markov-Switching model during period of 1978 to 2014. The results from estimated specified model indicate that firstly total, constructive and current expenditures in response to sanctions follow Markov-Switching pattern. Secondly, total, constructive and current expenditures in response to sanctions raise, and this finding confirm using public goods as defensive tool to contrast sanctions in Iran.
Majid Maddah; Mahboobeh Farahati
Abstract
The tax-expenditure hypothesis posed by Milton Friedman emphasizes a positive causal relationship between government tax revenues and government expenditures. If citizens do not have a correct perception of the real tax burden and under-estimate the price of public goods and services, there is a negative ...
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The tax-expenditure hypothesis posed by Milton Friedman emphasizes a positive causal relationship between government tax revenues and government expenditures. If citizens do not have a correct perception of the real tax burden and under-estimate the price of public goods and services, there is a negative causal relationship between tax revenues and government expenditures, which indicates existence of fiscal illusion. Using quarterly data. for the period 2001-2012, this paper investigates fiscal illusion in Iran. In order to achieve this goal, two symmetric and asymmetric error correction models, are estimated. According to results from Wald test in symmetric model, there is a negative causal relationship between real tax revenues, and real government expenditures. This result hence, confirms the presence of fiscal illusion in Iranian economy. Moreover, the results obtained from the asymmetric model show that there is merely fiscal illusion in the case of tax revenues reduction and there is no Granger causal relationship for the positive changes of tax revenues. Therefore, by a decline in tax revenues, government expenditures increase after a year due to fiscal illusion. Thus, it seems that in the state of government's budget deficit, raising the taxes is an efficient instrument.
