How Macroeconomic Variables in Iran Did Respond to Oil Sanctions: An Application of Bayesian TVP-SVAR Approach

This paper investigates the responses of Iran’s macroeconomic variables to the oil embargo against Iran. The article applies a Bayesian time-varying parameter SVAR model along the quarterly data of oil export, real exchange rate, inflation, real GDP and money supply of Iran over the period of 1991:Q2-2020:Q2. Applying time varying parameters in this study helps us to consider the economic structural changes and transition mechanism in analyzing the response of macroeconomic variables to oil embargo. The oil embargo against Iran has been intensified since 2012. To consider the effect of the oil embargo on Iranian macro variables, the model has been estimated in two different periods of time, before and after 2012. The results indicate that the escalation of the oil embargo from 2012 has caused a stagflation period and ends in a decline in real GDP and national currency depreciation. In addition, it has intensified money supply and triggers existing inflation. These results have some policy implications to overcome difficulties raises when the economy faces sanction.