The Effects of International Financial Integration on Macroeconomic Volatility in Iran: A Stochastic Volatility Model Approach

Document Type : Original Article

Authors

1 Assistant Professor of Economics, School of Humanities, University of Bojnord, Iran

2 Ph.D Candidate in Economics, Faculty of Economics and Political Sciences, Shahid Beheshti University, Tehran, Iran

10.29252/ecoj.10.3.201

Abstract

The main purpose of this paper is to examine the effects of financial integration on macroeconomic volatility in Iran. Economic theories do not clearly explain the effects of financial integration on macroeconomic volatility and this is essentially an empirical problem. Hence, we have presented an empirical model to test the effect of international financial integration on macroeconomic volatility in Iran over the period 1973-2016. For this purpose, first, the macroeconomic uncertainty was extracted using stochastic volatility model with leverage effects and using the principal component analysis method. The results show that in the long run, international financial development, international financial integration, and terms of trade volatility have a positive effect on macroeconomic volatility in Iran, while the effect of trade openness on macroeconomic volatility in Iran is negative. In addition, in the short run, there is no significant relationship between the relevant variables and macroeconomic volatility.

Keywords

References

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Journal of Economics and Modelling
Volume 10, Issue 3 - Serial Number 39
December 2019
Pages 179-206

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