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Forecasting the Trend of Macroeconomic Variables in Terms of Financial Conditions Index in Iran: TVP-FAVAR Approach (in Persian)

Author

Listed:
  • Alahverdi, Atefe

    (Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.)

  • Daei-Karimzadeh, Saeed

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

  • Ghobadi, Sara

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

Abstract

Due to the forward-looking nature of economic decisions, forecasting the trend of macroeconomic variables has a fundamental role in economic planning and policies. For this purpose, the present study attempts to extract the financial conditions index for the period 1991-2019, then the movement trend of macroeconomic variables has been forecasted using the Time-Varying Parameter Factor-Augmented Vector Auto-Regressive (TVP-FAVAR). The results show that the financial conditions index has undergone significant changes in recent years, especially in the 2010s, which has had an effective role in the fluctuations of other markets due to the influence and change in the behavior of other macroeconomic variables. Furthermore, forecasting the trend of macroeconomic variables also indicates that this trend is unstable; in other words, instability in the trend of macroeconomic variables is evident and we cannot expect a positive outlook for the above variables.

Suggested Citation

  • Alahverdi, Atefe & Daei-Karimzadeh, Saeed & Ghobadi, Sara, 2023. "Forecasting the Trend of Macroeconomic Variables in Terms of Financial Conditions Index in Iran: TVP-FAVAR Approach (in Persian)," The Journal of Planning and Budgeting (٠صلنامه برنامه ریزی Ùˆ بودجه), Institute for Management and Planning studies, vol. 28(3), pages 161-185, December.
    • Handle: RePEc:auv:jipbud:v:28:y:2023:i:3:p:161-185
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    More about this item

    Keywords

    Financial Conditions Index; Forecasting; Trend; State Space Model; Time-Varying Parameters.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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