Investigating the impact of monetary, financial, commercial and currency shocks on sustainable economic development in Iran through the structural vector autoregression model approach (SVAR)

Undoubtedly, macroeconomic policies play a vital role in achieving sustainable economic development, especially during economic crises. The results of the existing studies show that most of them have focused on the role of monetary policy or fiscal policy separately; however, a combination of monetary, fiscal, exchange and trade policies and their interactions have rarely been focused on. Therefore, the present study seeks to investigate the impact of monetary, financial and currency shocks on sustainable economic development in Iran.

In order to achieve the objectives of the research, certain variables were used, including green gross national product (as an indicator of sustainable economic development), government expenditures (as an indicator of fiscal policy), exchange rate (as a currency policy), the degree of trade openness or the totality of exports and imports (as an indicator of trade policy), and wide money supply (as an indicator of monetary policy). Also, the essential data for the period of 2001-2021 were collected from the Central Bank of Iran, and then they were seasonalized. Moreover, in order to analyze the data, the structural vector autoregression (SVAR) model, which is logically based on economic theories, was used to apply constraints and restrictions. The SVAR model makes it possible to evaluate the impact of various dimensions of shocks caused by monetary, financial, foreign exchange and commercial policies on economic stability in Iran. Finally, the research data were analyzed by means of the Eviews software.

The results of the Phillips-Perron test for stationarity showed that the variable of commercial openness is at a stationary level and the variables of gross national green production, government expenditures, exchange rate and wide money supply are stationary after one differentiation. Also, the lowest statistical value of Schwartz-Bizen to determine the optimal interval belongs to the first interval, and the optimal interval is model 1. In addition, the statistical values ​​of both the effect test and the maximum eigenvalue are smaller than the critical values ​​at the 95% level. As a result, there is no cumulative or long-term relationship between research variables. The results showed that the monetary policy index (broad money supply) has a negative effect on the sustainable economic development index because an increase in money supply leads to a decrease in the value of the domestic currency and an increase in the price of domestic goods. This, in turn, will lead to a reduction in total demand, and production and has a negative effect on sustainable economic development. So, if a shock of 1% is introduced to the money supply, the green national gross production will decrease by 0.08% in the first period and 0.23% in the second period. After that, the effect of this shock is neutralized during the fifth period and becomes zero. Also, the financial policy index (government spending) has a positive effect on the sustainable economic development index (green national production). This happens due to an increase in the government spending which leads to a corresponding increase in investment, production, gross domestic product and eventually a high level of sustainable economic development. So, if a shock of 1% is introduced to the government's expenses, the green national gross production will increase by 0.04% in the first period, 0.11% in the second period, and 0.16% in the third period. After that, the effect of this shock is neutralized during the fourth period and becomes zero. In addition, the index of foreign exchange policy (exchange rate) negatively affects the index of sustainable economic development (GDP) because an increase in the exchange rate leads to lower values of the domestic currency and higher costs of domestic goods. This, in turn, lead to a decrease in the total demand, and production rate and has a negative effect on sustainable economic development. So, if a shock of 1% is introduced to the exchange rate, the green national gross production will decrease by 0.11% in the first period and 0.16% in the second period. Finally, since trade liberalization leads to indiscriminate imports, misallocation of financial resources, reduction of production and trade and lower levels of sustainable economic development in developing countries, the trade policy index (degree of trade openness) has a negative effect on the sustainable economic development index (green national product). Accordingly, if a shock of 1% is introduced to the degree of commercial openness, the green national gross production will decrease by 0.03% in the first period and 0.08% in the second period.

The results showed that the variables of expansionary monetary policy, exchange rate fluctuation and open trade policy have negative effects on economic sustainable development. However, expansionary financial policy can positively affect sustainable growth.  Considering the negative effect of expansionary monetary policy on sustainable economic development and due to sustainable economic sanctions, the most important priority should be given to providing resources for the banking system. To achieve sustainable economic development, government and state-owned companies are recommended to borrow less from banks, the government should pay more attention to the central bank, and the banks should be allowed to provide credit resources for productive enterprises under the supervision of the government. Also, exchange rate fluctuations have an unclear effect on sustainable economic development. Reforming the currency system and exchange rate should thus be one of the government's priorities. Due to the failure of the government to control the exchange rate during currency crises, the establishment of the currency exchange is beneficial for the economy and can prevent sudden jumps in the exchange rate. Finally, since the open trade policy has a positive effect on sustainable economic growth, a comprehensive export development program should be implemented by modifying and reinforcing both the macroeconomic environment and the institutional environment.