The Impact of Oil Price Volatility on Iran's GDP Growth A Markov Model Analysis

Document Type : Research Article



Considering the major impact which volatility in the oil prices has on various sectors of Iran's economy and the importance of that role in economic growth and development, this paper intends to investigate the effects of the volatility in oil prices on Iran's output growth for the period of 1968 to 2010. To that end, oilprice volatilityindex has been estimated incorporating with EGARCH (0, 1) model using the Markov-Switching's nonlinear models to investigate the effects of the impact of oil price volatility on Iran's output growth. Estimations obtained through the Markov Switching models indicated that MSIAH model with two regimes out of the various MS model are the most suitable ones. The result of the estimations obtained through the Markov Switching models indicated that the oil price volatilityindex with considering two different regimes and lagging time intervals are significant and effect on the GDP growth and strongly influence of oil price volatility both two regimes had different and regime 1 stranger regime 2. The practical implications of these findings could be beneficial to the investors and policy makers who need to be aware of the exact nature of the effects which oilprice volatility has on the economic growth.