structural vector error correction model (svecm)

This study aims to provide a mechanism on long-term relationships between key economic variables, drawing on a vector error correction model with exogenous variables (SVECM). In doing so, quarterly data for the period 1374-1392 has been used to survey the long-run relationship between GDP, real liquidity, exchange rate, price index, a weighted average of foreign countrie's production, oil export earnings and government deficit.
The results show a positive impact in real liquidity's increase on output. The long-term effect of oil export earnings - due to its role in formation of capital- on production was positive, meaning that these earnings play an important role, even in long-term, in economic growth. Results confirmed the existence of fiscal dominance in monetary policy formulation, since 1% increase in non-oil government budget deficit could lead to an 0.46% increase in real liquidity. The results show that an increase in real output and real liquidity, respectively, could decease and increase the real exchange rate. In long run, oil revenues has positive effect on real exchange rate, due to an increase in government controls on nominal exchange rate, that in turn can e caused by government budget's dependency on oil revenues, or cheap imports because of low exchange rate price.