Investigating the Economic Growth Multi Behavior Patterns in Response to Crude Oil Price Volatility: An Application of GARCH Models and Markov Switching Regression Model

Mehregan, Nader; Mohammadzadeh, Parviz; Haghani, Mahmoud; Salmani, Yunes

Volume 4, Issue 12 (7-2013) jemr 2013, 4(12): 73-101 | Back to browse issues page

‎ 20.1001.1.22286454.1392.3.12.5.9

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Mehregan N, Mohammadzadeh P, Haghani M, Salmani Y. Investigating the Economic Growth Multi Behavior Patterns in Response to Crude Oil Price Volatility: An Application of GARCH Models and Markov Switching Regression Model. jemr 2013; 4 (12) :73-101
URL: http://jemr.khu.ac.ir/article-1-593-en.html

Investigating the Economic Growth Multi Behavior Patterns in Response to Crude Oil Price Volatility: An Application of GARCH Models and Markov Switching Regression Model

Nader Mehregan ^*

¹, Parviz Mohammadzadeh²

, Mahmoud Haghani³

, Yunes Salmani

1- Bu-Ali Sina University , mehregannader@yahoo.com
2- University of Tabriz
3- University of Technology

Abstract: (12044 Views)

Price shocks lead to oil price volatility in world oil markets. In response to this volatility, economic growth may take different regime and behavior patterns in different situation. Investigating this multi behavior patterns can be useful for policymakers to reduce the effect of oil price volatility. In this study, an EGARCH model has developed using the seasonal data of OPEC oil basket nominal prices during 1367:Q1-1389:Q4. Markov switching models is also applied to investigate the multi behavior patterns of economic growth in response to oil price volatility in Iran. The results show that positive oil price shocks sharply lead to formation of oil price volatility, but, the negative price shocks will slightly reduce oil price volatility. Iranian economic growth is affected by this volatility under three different behavior regimes. If the economy switch to one of the regimes (low, medium, high economic growth), the probability of transition between these regimes and their duration is different. So, oil price volatility as a reason for low economic growth in Iran may cause the economy switch to its lower situation.

Keywords: Oil Price Volatility, Multi Behavior Patterns, Economic Growth, GARCH Models, Markov Switching Regression, Transition Regime.

Full-Text [PDF 1062 kb] (3039 Downloads)

Type of Study: Applicable | Subject: انرژی، منابع و محیط زیست
Received: 2012/11/16 | Accepted: 2013/10/12 | Published: 2013/10/12