Nonlinear Effects of Macroeconomic Variables on Economic Activities with Emphasis on the Exchange Rate (The Case of Iran)

In this paper, asymmetric effects of exchange rate fluctuation (according to positive and negative shocks) on real output were investigated. In the meantime, the study of behaviour of real output growth in Iran’s economy over the period 1338-1386 was done. In specification of the output growth equation, in spite of considering positive and negative shocks of exchange rate, the effects of other factors (control variables) including both factors of the supply side (e.g. oil revenues and investment) and factors of the demand side (e.g. government spending) were considered. The results show that negative shocks have much more effects on reduction of economic growth compared to positive shocks, which was in a great agreement with the main hypothesis at this study. In fact, negative shocks of real exchange rate (appreciation of the domestic currency) decrease the economic growth, while positive shocks of exchange rate don’t show similar effects on output and can’t recover output to the initial level. In addition, by using nonlinear models of STR and studying of relationships between output and political variables, it can be concluded that real output growth in Iran economy with respect to different levels at government spending growth shows a nonlinear behaviour. The Variables of negative shocks of exchange rate, ratio investment to output, government spending and monetary inequilibrium in low regime of government spending have important effects on economic growth, but in high regime effects of the mentioned variables decrease in a larch scale.
JEL Classification: C01, C13, F31, O23