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

Atefe Alahverdi, Saeed Daei-Karimzadeh and Sara Ghobadi ()
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Atefe Alahverdi: Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.
Saeed Daei-Karimzadeh: Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran
Sara Ghobadi: Department of Economics, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran,

The Journal of Planning and Budgeting (٠صلنامه برنامه ریزی و بودجه), 2023, vol. 28, issue 3, 161-185

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.

Keywords: Financial Conditions Index; Forecasting; Trend; State Space Model; Time-Varying Parameters. (search for similar items in EconPapers)
JEL-codes: C22 C53 E44 (search for similar items in EconPapers)
Date: 2023
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