The Examination of the Relationship between Macroeconomic Instability and Economic Growth in Iran

It is often argued that macroeconomic instability can form a binding constraint on economic growth and believed that economic growth requires macroeconomic stability. At the broadest level، stability can help to explain the sustained growth of countries. This study investigates the relationships between macroeconomic instability and growth in Iran over the period 1965-2010. We use recent time series econometric techniques، such as impulse response analysis and Variance Decomposition، to analyze empirical relationships between the variables that are so useful in Vector Autoregressive (VAR) models. The results of this paper suggest that the chronic and increasing macroeconomic instability of the Iran economy has seriously affected her growth. Economic growth in Iran has a long-term relationship with the macroeconomic instability. In other words، changes in macroeconomic instability indicators will be associated with the increase (decrease) of economic growth in the long run.