The Effect of Oil Price Volatilities on Macroeconomic Variables in Iran (Structural Vector Auto Regression Approach)

Abstract

In this study we investigate the positive and negative effects of oil price volatilities (asymmetric effect) on GDP, consumer price index, imports, government expenditure and money stock using quarterly data trough the Structural VAR approach and using Impulse Response Function and Variance Analysis. Results of Impulse Response Function and Variance Analysis indicate that economy of Iran is sticky to the oil income. The effect of oil shocks on studied macroeconomic variables is as expected and asymmetric and was divergent for most variables. This effect is not adjusted even in the twenty seasons. Oil shocks (especially positive shocks) have serious and significant role in volatilities of other variables in long-term.

Keywords: Oil prices volatility, macroeconomic variables, Structural VAR approach, Hodrick-prescott filter, Iran’s economy

JEL Classification: D04, E20