Money Growth Uncertainty and Currency Substitution in IRAN: A Multivariate GARCH Approach

Subject Areas : Labor and Demographic Economics

Sima Eskandari Sabzi ¹ , Asad Allah Farzinvash ² , Kambiz Hojabr Kiani ³ , Hamid Shahrestani ⁴

1 - دانشجوی دکتری اقتصاد دانشگاه آزاد اسلامی واحد علوم و تحقیقات تهران
2 - عضو هیات علمی دانشگاه تهران
3 - استاد اقتصاد دانشگاه آزاد اسلامی واحد علوم و تحقیقات تهران
4 - دانشیار اقتصاد دانشگاه آزاد اسلامی واحد علوم و تحقیقات تهران

Received: 2017-01-08 Accepted : 2017-01-08 Published : 2016-10-22

Keywords: Uncertainty, E52, JEL Classification: E41, F31. Keywords: Currency Demand, Currency Substitution, MVGARCH,

Abstract :

The aim of this paper is surveying the effects of money growth uncertainty on currency substitution. For this, bivariate GARCH model and VAR-BEKK method was used on the base of data for 1979 to 2014. The results show that money growth uncertainty affects currency substitution positively. Also, currency substitution, affected by its own past shock and the currency growth. On the other hand, there have been spillover of fluctuations from the currency growth to currency substitution and vice versa. Due to the existence of currency growth effective relationship on the currency substitution in Iran, it is necessary for controlling currency growth and preventing from currency irregular growth by policy makers.   

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