International Journal of Business and Development Studies (Jul 2022)

The Effect of Financial Fragility on Macroeconomic Variables: TVP_VAR Model for the Iranian Economy

  • Alireza Rezaee,
  • Dariush Fareed,
  • Habib Ansari Samani

DOI
https://doi.org/10.22111/ijbds.2022.7436
Journal volume & issue
Vol. 14, no. 1
pp. 25 – 40

Abstract

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The present study aimed to investigate the effect of financial fragility on macroeconomic variables within a TVP-VAR model. For this purpose, first the financial fragility variable was calculated. Then, this study evaluated the effect of this variable on macroeconomic variables including economic growth rate, inflation rate, and exchange rate. In this study, the quarterly data for the period 2001-2020 were used. The results indicated that financial fragility had a negative effect on economic growth but a positive effect on exchange rate and inflation by creating uncertainty in the economy. In other words, financial fragility in Iran increased economic fluctuations by reducing economic growth and increasing inflation and exchange rates.

Keywords