Testing the causality of production and inflation in recession and boom regimes through tension in the stock market, foreign exchange, monetary and government markets
Testing the causality of production and inflation in recession and boom regimes through tension in the stock market, foreign exchange, monetary and government markets
Subject Areas : Financial Knowledge of Securities Analysis
farzam emadifar 1 , zohre tabatabaienasab 2 , seyed yahya abtahi 3 , jalil totonchi 4
1 - Department of Economics, Yazd Branch, Islamic Azad University, Yazd, Iran
2 - Department of Economics, Yazd Branch, Islamic Azad University, Yazd, Iran. (Corresponding Author)
3 - Department of Economics, Yazd Branch, Islamic Azad University, Yazd, Iran. abtahi@ iauyazd.ac.ir
4 - Department of Economics, Yazd Branch, Islamic Azad University, Yazd, Iran
Keywords: Financial stress, inflation, production, recession and boom, Markov switching-var model.,
Abstract :
In this study, we seek to test the causality of financial stress with production and inflation in recession and boom regimes. For this purpose, the effect of the study variables during the period of 2001 to 2020 is analyzed seasonally by using the Markov Switching-VAR (MS-VAR) rotation and regime change model. Based on the results of the analysis of the flow of causality, at the 95% confidence level in the first regime, financial stress is the causal factor of production growth. Therefore, in the stagnation regime, there is a causal flow from the side of financial stress to production growth. Also, based on the results of the reaction shock functions in the recession regime, an increase in financial stress generally has a negative effect on production growth, and a one-way flow from the side of financial stress to production growth is established in both regimes. Also, based on the results of examining the flow of causality, it can be claimed that financial stress is the causal factor of inflation changes in the recession and boom regime, but in the opposite case, the flow of causality does not apply and inflation is not the factor of financial stress. It should be noted that a large part of the increase in financial tension in Iran's economy is due to political tension, government financial tension, currency tension and finally monetary tension due to the failure of the Iranian society in internalizing the economy and its stability.