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The political history of Iran in the last 67 years shows that Iran has always been the target of sanctions especially oil-related sanctions imposed by other countries and international organizations. Oil sanctions in the form of export, extraction technology, and foreign financing are the most important sanctions that have had significant effects on Iran's macroeconomic variables. Therefore, in this paper an attempt has been made to analyze the impacts of the abovementioned sanctions on the Iranian economy in the form of a Dynamic Stochastic General Equilibrium Model with the New Keynesian approach. The simulation of amplifying the intensity of the shock of oil sanctions demonstrates that the oil sanctions in the oil industry, reduce the amount of foreign and government investment, extraction technology level and oil export which causes a reduction in oil production. In the monetary and exchange sector, the sanctions reduce the central bank's foreign reserves ratio to the money base which increases the nominal exchange rate and in turn, raises the non-oil exports and causes a drop in imports. Regarding the government sector, government oil revenues decrease and this calls for the creation of money and seigniorage by the central bank for financing budget deficits such that the government pushes the budget towards maintaining the current expenditure and falling capital expenditure. In the household sector, there are increases in consumption expenditure and decreases in investment expenditure due to the expected inflation and ultimately, there is an increase in domestic products due to an increase in non-oil exports and decreased import and this subsequently raises the inflation. © 2020 Elsevier Ltd
Journal of Economic Studies (01443585)48(4)pp. 761-785
Purpose: The purpose of the current paper is to analyze the simultaneous effects of oil sanctions and financial sanctions on Iran's macroeconomic variables in a small open economy in the dynamic stochastic general equilibrium (DSGE) framework. Design/methodology/approach: A DSGE model with the new Keynesian approach has been designed for the above mentioned purpose giving consideration to households, production, trade, oil, government and central bank sectors. All of the parameters were calibrated by using geometric means of macroeconomic variables in 2004–2017 as the steady-state values of the variables in the static model. Findings: Amplifying the intensity of the oil sanctions reduces oil production due to decreasing investment, technology and export of oil and reduces the central bank's foreign reserves ratio to the money base that leads to an increasing exchange rate. Furthermore, oil sanctions decrease the government revenues due to a decrease in oil export and by the government imposing an expansionary fiscal policy in the form of increasing current expenditure and preserving construction expenditure to prevent deepening the recession, which causes budget deficit and then the issue of more bonds with a higher nominal interest rate. On the other hand, financial sanctions raise transaction costs and marginal costs in the trade sectors that lead to inflation and a decrease in nonoil export and various kinds of imports. Due to inflation and uncertainty, consumption of a household increases and investment expenditure of a household decreases. Originality/value: To the best of the author's knowledge, few studies in the world have analyzed the economic effect of the sanctions in the framework of DSGE models. There is no study in Iran to date which investigates the effects of the sanctions in the form of a DSGE model. So, this paper is the first study in Iran and one of the few studies in the world using a DSGE model for analyzing the effects of sanctions. Imposing three kinds of oil sanctions in addition to a financial sanction is another innovation of the current paper. © 2020, Emerald Publishing Limited.
Iranian Economic Review (10266542)23(1)pp. 235-260
The importance of foreign direct investment (FDI) in developing countries has begun to spread very rapidly, especially after the transition of command economies countries into open markets. Many countries see attracting FDI as an important element in their strategy for economic growth because FDI is widely regarded as an amalgamation of capital, technology, marketing, and management. So, it is important to understand why in many countries FDI inflow is lower than the expected. This paper is to investigate the linkages between political risk and foreign direct investment inflows. International country risk guide (ICRG) has dispersed separate financial, economic, and political ratings, and has identified 12 different political risks indices. Theoretically, it seems that there is a relationship between FDI and political risks, which is precisely the analysis undertaken in the current study. This paper employs an instrumental variable approach to investigate Iran time series data from 1985 to 2016. Wu-Hausman test is used to test for the presence of endogeneity, and two-stage least square estimator (2SLS) is estimated to find out the relationship between political risks indices and FDI inflows in Iran. The results show that external conflict, ethnic tensions, socioeconomic condition, investment profile, military, and religious tensions are the highly significant determinants of foreign investment inflows in Iran. © 2019, University of Teheran. All rights reserved.
