Investigating the Impact of Structural Shocks (Interbank Interest Rate, Liquidity, and Oil Revenues) on Economic Growth and Inflation in Iran

Document Type : Original Article

Authors

1 Associate Professor of Economics, Faculty of Economics, Allameh Tabataba’i University, Tehran, Iran

2 MA in Economics, Faculty of Economics, Allameh Tabataba’i University, Tehran, Iran

10.48308/jem.2025.237266.1946

Abstract

Fluctuations of economic growth and inflation pose significant challenges for national economies, highlighting the importance of understanding their underlying causes. While some studies have explored the role of interest rates in economic fluctuations in Iran, none have specifically utilized the interbank interest rate, which provides a more accurate measure than deposit or loan rates. This study aims to analyze the impact of structural shocks -specifically those from the interbank interest rate, liquidity, and oil revenue- on economic growth and inflation in Iran. Using seasonal data from 2008:2 to 2024:1 within a structural vector autoregressive model, the findings reveal the following: First, an interest rate shock (interbank interest rate) significantly reduces economic growth in the short run, though the effect becomes negligible in the long term. Second, oil revenue and liquidity shocks have a positive impact on economic growth in the short term, with oil revenue exerting a more stable and pronounced influence than liquidity. Third, an interest rate shock causes a significant rise in inflation in the short term; and fourth, both oil revenue and liquidity shocks lead to increased inflation, with the inflationary effect of liquidity shocks being more persistent over time. Since liquidity shocks only affect economic growth in the short term and lead to inflation in the long term, and interest rate shocks also have a negative impact on economic growth in the short term and exacerbate inflation in the long term, it is recommended to follow monetary rules and avoid discretionary policies.

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References

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