Journal of Mathematics and Modeling in Finance

Dynamic Analysis of the Effects of Exchange Rate Volatility, Financial Development, and Trade Openness on Economic Growth in Iran: A TVP-VAR Approach

Document Type : Research Article

Authors

Ehsan Zanganeh 1
Nafiseh Keshtgar 2

1 Faculty of Literature and Humanities, University of Birjand, Birjand, Iran.

2 Faculty of Literature and Humanities, University of Birjand, Birjand, Iran

10.22054/jmmf.2025.87415.1203
Abstract
Over recent decades, Iran’s economy has faced significant challenges, including international sanctions, severe exchange rate fluctuations, and high inflation rates, all of which have the potential to drastically alter the trajectory of economic growth. This study investigates the dynamic impacts of exchange rate volatility, financial development, trade openness, and inflation on Iran's economic growth over the monthly period from 2011 to 2024, using a Time-Varying Parameter Vector Autoregressive (TVP-VAR) model. This nonlinear approach is adopted due to the limitations of linear models in capturing such complex dynamics. The findings reveal that both exchange rate volatility and financial development exert a negative and statistically significant impact on economic growth, whereas trade openness contributes positively over the long term. Inflation is also found to have a detrimental long-run effect on growth. In the short run, economic growth responds asymmetrically to these variables across different time periods. These results underscore the necessity for policymakers to account for such asymmetric effects when designing and implementing economic policies, especially in contexts affected by currency shocks and sanctions.

Keywords

Exchange rate volatility
Financial development
Economic growth
TVP-VAR
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Journal of Mathematics and Modeling in Finance
Volume 6, Issue 1
February 2026
Pages 47-66

  • Receive Date 06 August 2025
  • Revise Date 03 November 2025
  • Accept Date 22 November 2025

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