Impact of Inflation Uncertainty on Iran Economic Growth (Using EGARCH and VECM methods (1971-2007))

اقتصاد پولی مالی

Article 4, Volume 16, Issue 29, January 2011   

Document Type: پژوهشی

DOI: 10.22067/pm.v16i29.27196

Authors

Mahdi Safdari^* ; Farshid Pourshahabi

Abstract

In this study, the relationship between inflation and economic growth of Iran is conciliated with a perspective on uncertainty of inflation. We use a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model that make possible this advantage that Conditional variance of error term changes along the time, also, Vector Error Correction model (VECM) is stable. For surveying the co-integration relation between variables of model, we use Johansen Co-integration test. The source of used data is Central Bank of Iran from 1971 to 2007. The cause of this selection is that the impact of inflation on Iran economy started from 1971 with a palpable effect. For analysis of relation between variables of model, Impulse Response (IR) and Variance Decomposition (VD), that are so useful in Vector Autoregressive (VAR) models, are used. For this study the Conditional variable of inflation that is lead to uncertainty of inflation and it redound to decrease of investment of private sector of Iran economy and this had a long run negative effect on economic growth of Iran.

Keywords

Inflation Uncertainty; Economic Growth; GARCH; VECM; Impulse Response; Variance Decomposition (VD)