Investigating the Effect of Oil Shocks and Economic Sanctions on Unemployment Regimes in Iran using the Markov Switching Approach

Abstract

Oil price shocks are one of the most important variables affecting the performance of Iran's economy and the unemployment rate as one of the most important indicators of macroeconomic performance. The purpose of this study is to investigate the asymmetric effects of oil price shocks and the impact of sanctions on the unemployment rate in Iran's economy. To this end, the effect of positive and negative oil price shocks and the intensity of sanctions on Iran's unemployment rate during the period 1980-2015 was investigated using Markov switching method. The results of this study show that the positive impact of oil prices has had a negative effect on unemployment and has led to a reduction in unemployment and, in contrast to the negative impact of oil prices, has had a positive and increasing effect on unemployment. Also, the results of the unemployment model estimation indicate that the increase in the intensity of sanctions has had an increasing impact on unemployment. Finally, Iran’s economy is on average 2.8 years in the high unemployment regime and 1.4 years in the low unemployment regime that indicates the persistence of high unemployment rate in Iran's economy

Keywords

• oil price shock
• sanctions
• unemployment
• markov switching
• iran’s economy