Oil exports and the Iranian economy

Hadi Salehi Esfahani, Kamiar Mohaddes, M. Hashem Pesaran

Research output: Contribution to journalArticlepeer-review

Abstract

This paper presents an error-correcting macroeconometric model for the Iranian economy estimated using a new quarterly data set over the period 1979Q1-2006Q4. It builds on a recent paper by the authors, Esfahani, Mohaddes, and Pesaran (in press), which develops a theoretical long-run growth model for major oil exporting economies. The core variables included in this paper are real output, real money balances, inflation, exchange rate, oil exports, and foreign real output, although the role of investment and consumption are also analysed in a sub-model. The paper finds clear evidence for the existence of two long-run relations: an output equation as predicted by the theory and a standard real money demand equation with inflation acting as a proxy for the (missing) market interest rate. The results show that real output in the long run is influenced by oil exports and foreign output. However, it is also found that inflation has a significant negative long-run effect on real GDP, which is suggestive of economic inefficiencies and is matched by a negative association between inflation and the investment-output ratio. Finally, the results of impulse responses show that the Iranian economy adjusts quite quickly to the shocks in foreign output and oil exports, which could be partly due to the relatively underdeveloped nature of Iran's financial markets.

Original languageEnglish (US)
Pages (from-to)221-237
Number of pages17
JournalQuarterly Review of Economics and Finance
Volume53
Issue number3
DOIs
StatePublished - Aug 2013

Keywords

  • Error-correcting relations
  • Growth models
  • Iranian economy
  • Long-run relations
  • Oil exporters
  • Oil price and foreign output shocks

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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