The effects of financial stress index on economic growth using linear and nonlinear models (Markov Switching)

Subject Areas : Financial Knowledge of Securities Analysis

M. Ebrahimi Shaghaghi ¹ , F. Rahnamay Roodposhti ² , M. Ebrahim Maddahi ³ , Hashem Nikoomaram ⁴ , Taghi Torabi ⁵

1 - Ph.D Student of Financial Management, Islamic Azad University, Science and Research Branch, Tehran, Iran.
2 - Professor of Financial Management, Islamic Azad University, Science and Research Branch, Tehran, Iran.
3 - Assistant Professor of Clinical Psychology, Shahed University, Tehran, Iran.
4 - Professor of Financial Management, Islamic Azad University, Science and Research Branch, Tehran, Iran.
5 - Associate Professor of Economics, Islamic Azad University, Science and Research Branch, Tehran, Iran.

Received: 2017-04-25 Accepted : 2017-05-10 Published : 2019-06-22

Keywords: Financial Stress Index, Economic growth, Linear Model, Markov switching model,

Abstract :

The global financial crisis has affected the advanced and developed economies. Iran's economy has been affected, like many other developing countries. In this paper, the effects of financial stress index on economic growth using linear and nonlinear models (Markov Switching) has been investigated. In this regard, after the construction of the index, at the beginning defined a production function and the impact of financial stress on economic growth in the rest of the production function variables measured in Linear method. According to the results of financial stress index in the model of the long - term and short – term negative and significant effect on economic growth. The coefficient of this index is 0.02%, which means that with an increase of 1% in the amount of this indicator, the economic growth per capita decreases by 0.20%.So financial stress an obstacle to economic growth and the variables government spending, taxes, and the rate of exchange, which as indications of how to manage the government policies in fiscal, monetary and exchange Optimally utilized. Finally, to test the hypothesis on the nonlinear method of switching Markov model has been used.The results show that, when financial stress is increasing, the effect of uncertainty on financial stress on economic growth is negative

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