Nonlinear Effects of Macroeconomic Variables on Economic Growth Based on STR Approach: the Case of Iran



In this paper, we examine the determinants of economic growth in Iran over the period 1338-1386 based on linear as well as non linear smooth transition regressions (STR). In model specification, economic disequilibrium including money, exchange rate and output gaps are entered as explanatory variables in addition to the explanatory conventional ones such as investment, government spends and oil revenues representing demand and supply sides factors. The results show that nonlinear specifications outperform the linear ones which is in a great agreement with the main hypothesis at this study. In nonlinear specification, the model coefficients change along with foreign or exchange rate disequilibrium.  In first regime (defined as domestic currency appreciation), negative oil shocks, real balances, investment to output ratio, government spending and economic disequilibrium have strong and significant effects on economic growth. However, in the second regime (domestic currency depreciation), the negative oil shocks, investment ratio and government spending have much less impacts with real balance variable leaving stronger impacts on economic growth.