The effects of oil price shocks on the Iranian economy |
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Authors: | Mohammad Reza Farzanegan Gunther Markwardt |
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Affiliation: | Faculty of Business and Economics, Dresden University of Technology, D-01062 Dresden, Germany |
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Abstract: | The Iranian economy is highly vulnerable to oil price fluctuations. This paper analyzes the dynamic relationship between oil price shocks and major macroeconomic variables in Iran by applying a VAR approach. The study points out the asymmetric effects of oil price shocks; for instance, positive as well as negative oil price shocks significantly increase inflation. We find a strong positive relationship between positive oil price changes and industrial output growth. Unexpectedly, we can only identify a marginal impact of oil price fluctuations on real government expenditures. Furthermore, we observe the ”Dutch Disease” syndrome through significant real effective exchange rate appreciation. |
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