Examining the Effect of Exchange Rate Shocks on National Business Cycles under Linear and Nonlinear Regimes Using the Smooth Transition Regression Model
Keywords:
Exchange rate shock, monetary policy, business cycles, threshold LSTAR modelAbstract
The exchange rate is regarded as one of the most important macroeconomic variables in an economy. Likewise, the existence of business cycles is a plausible phenomenon in the economies of all countries and is influenced by other macroeconomic variables. In this article, the effect of exchange rate shocks on the country’s business cycles under different regimes is examined using the threshold LSTAR model. The present study is applied in terms of purpose and descriptive–analytical in nature. The statistical population of the study consists of data related to the Iranian economy over the period 1978 to 2022, selected on an annual basis, and the Smooth Transition Regression (LSTAR) model estimated using EViews software is employed for model estimation. First, the stationarity of the research variables was examined, and subsequently, long-run relationships among the variables were analyzed using cointegration tests. In the LSTAR regression model, in the first section, the real exchange rate with a lag of three periods was selected as the threshold variable. The results of the analysis showed that exchange rate shocks have different effects on the country’s business cycles across different regimes.
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Copyright (c) 2025 Mohammad Zolfaghari (Author); Marjan Damankeshideh; Teimour Mohammadi, Shahriyar Nessabian (Author)
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