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Identifying the Factors Affecting the Recession in Iran: Monte Carlo Simulation and Metropolis-Hastings (MH) Algorithm

Author

Listed:
  • Refaei, Ramiar

    (Ph.D Student in Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran)

  • Sameti, Morteza

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

  • Ghobadi, Sara

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

Abstract

Changes in macroeconomic indices and variables such as the decline in GDP, the decline in oil exports, and the exchange rate fluctuation indicate a period of recession in the Iranian economy. In this paper, the Monte Carlo Markov Chain (MCMC) and the MH algorithm are used to identify the factors that contributed to this recession during the years 0-1. The studies show that the results of MH algorithm confirm the model estimation results using Monte Carlo Markov chain approach and at 95% confidence level, the coefficients of the variables are statistically significant and reliable. Therefore, the most influential variables on the recession were estimated by Monte Carlo approach, exchange rate changes, crude oil prices, and government corruption. The results also show that the Bayes factor matrix for all estimation models is well-reasoned. The later probabilities of regimes and the final exponential ratio show that the change points in the sixth pattern (with variables: exchange rates, crude oil prices, government corruption and productivity) are different from the rest of the models presented, so regime change occurs in this model.

Suggested Citation

  • Refaei, Ramiar & Sameti, Morteza & Ghobadi, Sara, 2019. "Identifying the Factors Affecting the Recession in Iran: Monte Carlo Simulation and Metropolis-Hastings (MH) Algorithm," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 6(3), pages 241-272, October.
    • Handle: RePEc:ris:qjatoe:0165
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    More about this item

    Keywords

    MH Algorithm; Monte Carlo Markov Chain; Recession; Bayes Factors.;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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