Effects of crude oil price uncertainty on macroeconomic variables in Iran

The main objective of the present paper is to evaluate effect of oil price uncertainty on macroeconomic variables of Iran by using the seasonal data of 1988:2 to 2011:1. To do so; first, oil price uncertainty index was estimated by GARCH model. Then, the mutual relationships among the variables of the model were analyzed by Vector Auto-Regression (VAR) Model. Next, the long-run relationships among the variables were derived by using Johansen-Juselius Cointegration Test. Using the instant response functions (IRFs), uncertainty impulse of the oil price indicated a negative impact on consumption of the private sector, national productivity, investment, exports, and government expenditures. Moreover, considering the extracted long run equation for the studied period, variables including governmental expenditures, investment, and export show positive significant impacts on non-oil gross domestic production (GDP). This finding is consistent with theoretical principles of the research. Similarly, private consumption expenditure and uncertainty of oil price indicated positive significant effects on inflation rate. In contrast, variables including government expenditures, investment, and export negatively affected the inflation. Moreover, net export is affected by the consumption expenditures, investment, and oil price uncertainty. In addition, investment is affected by the private consumption expenditure, government expenditures, and oil price uncertainty. Additionally, although in this study non-oil gross domestic production is imported to the model, affectability of the macroeconomic variables by oil price is obvious.