The Effects of Exchange Rate and the Latent Variable of Government Activities Shocks on Gold Prices and Tehran Stock Exchange Returns

Ahmad Ezzati Shourgholi, Parisa Youneszadeh Bavani and Reza Mohammadpour

Journal of Global Economy, 2025, vol. 21, issue 3, 147-165

Abstract: Exchange rate fluctuations can have wide-ranging impacts on macroeconomics, international trade, and financial markets. Governments, as primary actors in the economy, utilize various tools to manage and control exchange rate volatility. In some cases, certain government activities (particularly in oil-revenue-dependent and developing countries) are significant factors in creating exchange rate fluctuations. This study aims to address these issues by using quarterly data from 1993 to 2020 and employing an augmented factor vector autoregressive model with stochastic volatility. The research focuses on two main objectives: (1) estimating the hidden variable of government fiscal policies; (2) analyzing the effects of exchange rate shocks, in the presence of the hidden government variable, on gold prices and Tehran Stock Exchange returns; and (3) assessing the predictive power of the proposed model compared to other competing models. The findings indicate that the effects of exchange rate shocks on gold prices and stock returns vary over time, with a notable intensification since 2019. Additionally, a shock to the hidden variable of government fiscal policy leads to an increase in exchange rates, while gold and stock returns decrease.

Keywords: Exchange rate; Stock Market; Fiscal Policy (search for similar items in EconPapers)
JEL-codes: F31 G12 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.rcssindia.org/jge (application/pdf)
http://www.rcssindia.org (text/html)
Not freely downloadable

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jge:journl:2133

Ordering information: This journal article can be ordered from

Access Statistics for this article

Journal of Global Economy is currently edited by Dr J K SACHDEVA

More articles in Journal of Global Economy from Research Centre for Social Sciences,Mumbai, India
Bibliographic data for series maintained by Dr J K Sachdeva ().