The Impact of Financial Market Fluctuations on Financial Instability in the Iranian Economy: The Wavelet based Markov Switching Model

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Zarei Pegah; TEHRANCHIAN AMIR MANSOOR; Abounouri Esmaeil; TAGHINEJAD OMRAN VAHID

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Title

The Impact of Financial Market Fluctuations on Financial Instability in the Iranian Economy: The Wavelet based Markov Switching Model

Author(s)

Zarei Pegah | TEHRANCHIAN AMIR MANSOOR | Abounouri Esmaeil | TAGHINEJAD OMRAN VAHID | Issue Writer Certificate

Keywords

Exchange rate fluctuationsQ2

oil price fluctuationsQ2

stock market fluctuationsQ1

financial instability indexQ1

Markov Switching ModelQ2

Abstract

In this study, the effect of fluctuations of asset markets (exchange rate, oil price and stock market index) on financial instability index over a period of 1388-1397 monthly is investigated by using the Markov Switching Model. The wavelet transform model is used to extract Exchange rate fluctuations, oil prices and stock market index. The results show that the effect of Exchange rate fluctuations in different regimes and different time periods is different, so that in the short run the Exchange rate fluctuations in the high regime of the financial instability index have a different effect than the other periods. oil price fluctuations have a positive and significant effect in the medium-and long-term periods and in all regimes, and this effect will be stronger in the long run. Also, fluctuations in the stock market have a negative and significant effect only in the short run and under conditions of low regime of financial instability index. These results show that fluctuations have different effects with respect to time period as well as level of financial instability. Therefore, the management of foreign exchange rate and stock markets should take into the account of financial instability level and the timeframe for fluctuations.

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APA: Copy

Zarei, Pegah, TEHRANCHIAN, AMIR MANSOOR, Abounouri, Esmaeil, & TAGHINEJAD OMRAN, VAHID. (2020). The Impact of Financial Market Fluctuations on Financial Instability in the Iranian Economy: The Wavelet based Markov Switching Model. JOURNAL OF ECONOMIC RESEARCH AND POLICIES, 28(93 ), 203-232. SID. https://sid.ir/paper/394344/en

Vancouver: Copy

Zarei Pegah, TEHRANCHIAN AMIR MANSOOR, Abounouri Esmaeil, TAGHINEJAD OMRAN VAHID. The Impact of Financial Market Fluctuations on Financial Instability in the Iranian Economy: The Wavelet based Markov Switching Model. JOURNAL OF ECONOMIC RESEARCH AND POLICIES[Internet]. 2020;28(93 ):203-232. Available from: https://sid.ir/paper/394344/en

IEEE: Copy

Pegah Zarei, AMIR MANSOOR TEHRANCHIAN, Esmaeil Abounouri, and VAHID TAGHINEJAD OMRAN, “The Impact of Financial Market Fluctuations on Financial Instability in the Iranian Economy: The Wavelet based Markov Switching Model,” JOURNAL OF ECONOMIC RESEARCH AND POLICIES, vol. 28, no. 93 , pp. 203–232, 2020, [Online]. Available: https://sid.ir/paper/394344/en

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