The Reaction of the Financial Conditions Index to the Macroeconomic Variables Shocks.

Articles in Press

Authors

Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran

Abstract

The financial and real sectors are intrinsically related and the financial sector is affected by the systematic risks of the real sector. So, this study was done to investigate the reaction of the financial conditions index to the macroeconomic variables shocks in Iran with the time-varying parameter factor-augmented vector autoregressive model (TVP-FAVAR) and using quarterly data for the period from 1991 to 2019. The results show that the macroeconomic variables shocks are an important factor in explaining the behavioral changes of the financial conditions index. In other words, the financial conditions index has shown different reactions to the macroeconomic variables shocks over time, and the intensity and extent of this reaction has not been the same for each of the macroeconomic variables. Therefore, policy makers should adopt appropriate policies according to the effects of macro variables on the economy so that they can ultimately improve the financial conditions of the country.

Keywords

Iranian Economic Review

Articles in Press, Accepted Manuscript
Available Online from 03 September 2023

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