vector error correction model

The main goal of this article is to investigate the impact of bank facilities on business cycles in the agricultural sector of Iran's economy. The statistical population in this research consists of the added value of the agricultural sector at constant prices of 2013, the working force, fixed capital and the facilities granted by banks to this sector, in the period of 1978-2018, which are extracted annually from the Central Bank and It has been analyzed using Eviews software. First, by using Hodrick-Prescott filter, business cycles are extracted separately, and then the model is estimated by vector error correction method. The adjustment coefficient related to the estimated equilibrium relationship in the agricultural sector is estimated as -0.44, which means that in each period, 44% of the imbalances in one period are adjusted in the next period. What is clear is that expansionary monetary policies in the form of banking facilities in Iran's economy are disciplined policies rather than active and diagnosis-based policies.

This paper investigates the relative contributions of nominal exchange rates and relative price adjustments toward PPP in a VECM framework in Iran. In conducting empirical tests, annual time series data were used covering the period of 1357 to 1401. The cointegration test indicates the existence of a long-run cointegrating relationship between the nominal exchange rate and relative price. Also, the adjustment speed coefficient of the real exchange rate resulting from the difference in the adjustment speeds of the variables of the VECM model is around -0/2. This value indicates the slow adjustment process in such a way that it is expected that 80% of the current period's deviation from purchasing power parity will remain for the next year. On the other hand, the evidence from impulse response functions shows that relative price shocks lead to much longer real exchange rate deviations than nominal exchange rate shocks. Also, the nominal exchange rate in response to the relative price impulse is slowly on its long-term equilibrium path; While the relative price reacts to the impulse of the nominal exchange rate, it is placed on the path of its long-term equilibrium at a faster rate. In general, it can be said that to establish purchasing power parity, the relative price will play a more important role than the nominal exchange rate. Thus, Iranian policymakers must pay attention to price stabilization and the reduction of high inflation rates through appropriate macroeconomic policy.

In order to adopt the appropriate fiscal policy, one should know the correct relationship between the revenues and expenses of the government. The main goal of this study is to offer appropriate policy recommendations to reduce the budget deficit and resolve the imbalance between the government's revenues and expenses. In this research, the dynamic relationship and mutual effects between government revenues and government expenditures have been tested using the vector error correction (VEC) model. The results confirm the Tax-and-Spend Hypothesis for Iran. The political consequence of this hypothesis for Iran is that higher tax revenues lead to higher expenditures, which can cause an increase in the inflation rate and financial illusion in addition to the government's failure to resolve the budget deficit. Therefore, the government's efforts should be accompanied by appropriate reforms in public spending to enable productive investments and, as a result, sustainable economic growth. With increasing economic growth in the long term, it will be possible to increase tax revenues in order to compensate for the budget deficit.

Banks are the main part of the money market in Iran's economy. Therefore, determining the effect of bank facilities on production during recession and boom periods can be effective in applying better monetary policies. In this study we estimate the business cycles in housing and service sectors by using the Hodrick-Prescott filter, the study also examines the effects of bank facilities on the business cycles of these sectors in Iran during the period 1978 to 2018 using the VECM method. The adjustment coefficient related to the estimated equilibrium relationship in the service and housing sectors shows that the speed of adjustment in housing is six times that of services, also the results show that bank facilities in the long run reduce the fluctuations of business cycles in the housing sector, while in the service sector, the fluctuations of business cycles generally have a downward trend.

The main objective of this study is to investigate the effect of Types the renewable energy production on Iran’s economic growth during the period of 2008-2017. For this analysis, Vector Autoregressive Model, Johansson-Juselius method and Vector Error Correction Model are used. In accordance with the obtained results, the effect of the variables’ coefficients is coincident based on the theoretical foundations and statistically significant. The results indicate that in the long run, the variables of renewable energy investment by the private sector, the power generation from the renewable energy, and the consumption of renewable energies, which are considered as indicators for renewable energies, have a positive and significant effect on the economic growth. The coefficient of the error correction method indicates that about 0.62 of the short-term imbalance is adjusted in each period to achieve the long-term equilibrium. Further, in the long run, a one percentage increase in the labor force variables, renewable energy investment by the private sector, electricity generation from renewable energy, and the Production of Types renewable energies) Wind, Solar, Hydro and geothermal) leads to 0.87, 1.17, 6.44, 4.29, 2.09, 1.78 and 1.56 percentage increase in the economic growth, respectivel and it became clear that It was found that among renewable energy sources, the effect of wind energy on growth is higher than other energies and we have to prioritize investment in wind energy. Therefore, according to the results of the research, the political recommendation is that, considering the process of the types of renewable energy sources in Iran, since wind energy has the greatest effect on economic growth compared to other energy sources. By investing in this unit, the share of renewable energy use in Iran could be increased Key words: Renewable energy, Economic Growth, Vector Error Correction Model and Johansson-Juselius method JEL: O13, C13, G21, C22

It is expected that high revenues of natural resources provide the necessary capital to improve economic development and growth in resource-rich countries. But the economic performances of these countries has been weaker in comparison with similar countries without natural resources’ endowment in recent decades. In this study, the role of oil revenues in relationship between financial and total economic growth and the growth of non-oil sector in Iran is investigated during the years 1969-2017 using vector error correction model. The results show financial development has a positive effect on economic growth in both cases, but the effect of oil revenues on economy and its fluctuations has a negative effect on the relationship between financial development and economic growth. In the second part, the same model is estimated for the economic growth of the non-oil sector. The financial sector's development has a greater effect on the economic growth of the non-oil sector and the smaller negative impact of oil revenues on it.

Considering the Increasing importance of inequality, it is necessary to inspect effective factors on it. Military expenditures as a part of government expenditures can have impacts on inequality through different mechanisms. In this paper we examine the effect of military expenditures on income inequality in Iran. Results show that there is a reversed U nonlinear relation between military expenditures and income inequality. It means by increasing military expenditures, income inequality gets worth at first but as the expenditures continues to increase, the inequality gets better. Results of Granger causality test and VECM model also show that in short and long run there is one way causality relation from military expenditures to inequality which in the case of a shock in the short run, in every period 0.11 of disequilibrium diminishes.

Globalization and the growth of trade among the economies, increase of the economies’ impact on each other and the economies that have a higher trade to GDP ratio (more open), are strongly influenced by global economy circumstance and particularly, their major trading partners. Accordingly, this study aimed to investigate the effect of China’s monetary policy on the degree of openness of Iran during 2002-2012. In this regard, the causalities between monetary and trade variables in two countries are analyzed. For this purpose, the study used vector error correction test, the Granger causality test and the Johansen – Juselius cointegration test. The results of this study indicate the effects of monetary policy are more effective on China’s degree of openness than Iran. Moreover, the Granger test results show that there is a bilateral relationship between these two variables. In other words, change in the money supply can affect the degree of openness, and openness can influence on the money supply in China and China’s degree of openness has a significant effect on Iran’s degree of openness.

Globalization and the growth of trade among the economies, increase of the economies’ impact on each other and the economies that have a higher trade to GDP ratio (more open), are strongly influenced by global economy circumstance and particularly, their major trading partners. Accordingly, this study aimed to investigate the effect of China’s monetary policy on the degree of openness of Iran during 2002-2012. In this regard, the causalities between monetary and trade variables in two countries are analyzed. For this purpose, the study used vector error correction test, the Granger causality test and the Johansen – Juselius cointegration test. The results of this study indicate the effects of monetary policy are more effective on China’s degree of openness than Iran. Moreover, the Granger test results show that there is a bilateral relationship between these two variables. In other words, change in the money supply can affect the degree of openness, and openness can influence on the money supply in China and China’s degree of openness has a significant effect on Iran’s degree of openness.

The employment and access to job is one of the most basic needs of a community so that the increase in employment is seen as one of the indicators of development in societies. Given the importance of the issue, the aim of this study is to evaluate the effect of exchange rate overshooting on employment in agriculture, industry and service sectors in Iran during 1973- 2011 using the seemingly unrelated regression and vector error correction model. The results of vector error correction model indicate that due to expansion in money supply exchange rate increases and divergence from equilibrium path occurs which finally leads to adjustment in the long run. Also, the results of seemingly unrelated regression model show that employment in industry and service sectors is respectively negatively and positively affected by exchange rate overshooting, yet the impact of this overshooting on employment in agriculture sector is not significant. In this regard, the demand of labor in the industry sector compared to service and agriculture sectors was the most sensitive to exchange rate overshooting. In addition, capital stock in industry and service sectors has a positive impact on employment in each sector.

Trade balance is regarded as both main macroeconomic factor and strategic constraint in developing countries. Exchange rate, which is defined as parity relationship between national currency and foreign currencies, is a vital determinant of countries’ trade balance. As the real effective exchange rate measures the changes in prices and relative costs by a common currency, it is the most popular indicator to measure competitiveness.
On one hand, fluctuation of this index represents disequilibrium in the economy, and on the other hand, it is the cause of more instability. Since the direction and size of the effects of real exchange rate on trade balance is an important macroeconomic issue, this articleinvestigates the real effective exchange rate changes on trade balance in Iran and its’ major partners using the Vector Error Correction Model ( VECM ) over the period 1993-2011. The results indicate that the real effective exchange rate volatility reduces trade balance only for Germany in the short run and rises it for Italy in the long run.

This study aims to evaluate the effect of electronic banking on holding currency by people, because the fast development of electronic banking is currently unavoidable subject in Iran. In e-banking, electronic transactions have been substituted for physical money transactions. This study explores whether electronic banking practice in Iran has reduced the amount of holding currency. Decreasing currency holdings increase the volume of bank deposits and the authority of regulatory and monetary policy-making by central bank and reduce the risks of money laundering. This study uses quarterly data from 2005 to 2014, Johansen-Juselius co-integration approach and Vector Error Correction Model (VECM) to analyze the long-term effects of e-banking development on the volume of currency in circulation. The results show that increasing volume of Point-of-sale (POS) devices in the long term has a significant and negative impact on the volume of currency while increasing use of Automatic Teller Machines (ATMs) has a significant and positive impact on holding currency.

The budget deficit policy is one of the fiscal policy instruments for eliminating the shortage of government revenues and achieving targeted economic growth in many countries. In recent years, for various economic problems in Iran, governments get some parts of the budget deficit from different sources. Foreign borrowing is one of the sources of deficit financing and the ways of using it may have positive and negative effects on economic growth. In this paper the empirical relationship between budget deficit and economic growth of Iran in the period 1980-2011 is analyzed in long and short run applying Johansen and Juselius co-integration method and vector error correction model (VECM). Results suggest that the impact of external debt on economic growth is negative and significant in the long run and short run. Thus, the optimal foreign borrowing and the other sources of deficit financing should be used for increasing employment and the high efficiency projects and the ability to pay foreign and domestic debts are necessary for achieving the targeted growth.

Economic growth is one of the main macroeconomic goals of most countries. It is therefore, of paramount importance to recognize the major factors that influence it. Financial development and trade openness are usually considered as two significant factors that affect economic growth in various ways. Using a vector error correction model (VECM), this study investigates the causality relationship between financial development, trade openness and economic growth in two major oil producing countries, Iran and Norway. The study period for Iran is 1967-2009, and for Norway is 1967-2006.The ratio of liquidity to GDP and the ratio of bank credit to the private sector to GDP have been used as two financial development indices. The trade openness and economic growth have been illustrated using trade intensity index and the GDP per capita. Findings of the study indicate that financial development and trade openness are both significant cause of economic growth in Iran in the short run. There is also a bi-directional causality between both indicators of financial development and economic growth in the long run. In Norwegian economy it is indicated that there is a significant causal relationship between bank credit to the private sector and economic growth in the short-term, and there also is a bi-directional causality between bank credit to the private sector and trade intensity in Norway in the long- term. Therefore, it can be concluded that according to the findings of this study, practically there is the supply side view in Iran, while there is the demand side view in Norway.

Discovering the structure and pattern of crude oil price fluctuations enables us to disclose valuable information about the price change، information transmission and reactions of these markets to the spillover in NYMEX. This study focuses on this task. Moreover، it tries to capture the fluctuation effects on the markets'' instabilities and analyses the spot and future markets operations in both price discovery – through error correction model- or volatility and risk spillover – through multivariate GARCH-BRKK model. The results show that causality in mean is from future to spot market and not the vice versa. In other words future markets undertake price discovery and leadership. The result of volatility spillover، information and risk transmission between markets shows that information transmission is from future to spot market and the reverse does not hold

High economic growth always has been of interest to policy makers and administrators that these strategies have been proposed to achieve this. Energy is a production factor and its impact on economic growth can be observed, therefore in this study was investigate the causality between energy consumption and economic growth in the ASEAN member countries, the period 1978 of 2008, for the purpose of the exam panel unit root, panel cointegration and panel vector error correction model is used. The results of this study indicate that in this group of countries there is not co-integration relationship between energy consumption, economic growth and price growth. But there is the co-integration relationship between energy consumption and economic growth. However, long-term bilateral causality between energy consumption and economic growth in the short term, there is also a one-way causality from energy consumption to economic growth.

Iran stock exchange is the main component of Iran’s capital market that has drew more attention to itself during recent years. Iran’s stock market are influencing by many factors which some of them are exogenous. In this study، the impacts of the exogenous oil and gold prices on Iran’s stock price index during the June 2000 till the November 2010 have been investigated. For this aim، the vector error correction model، impulse response function and variance decomposition have been used. The Result of long-term dynamic model shows a long-term equilibrium relationship between variables. The results also indicate that gold price has significant positive impact on stock price index while oil price has significant negative impact. Error correction coefficient indicates the slowing down of the short-term adjustment in long-term equilibrium.