Economic Sanctions, Speculative Attacks and Currency Crisis

Abstract

In this study, the effects of economic sanctions and speculative attacks on creating currency crisis have been investigated in Iranian economy during recent years. Economic sanctions can lead to currency crisis through trade barriers and restrictions on financial transactions and also speculative attacks can stimulate currency crises. According to the important of this issue, new model of currency crisis introduced based on Neo-Keynesian framework in Iranian economy. Also, the stock of foreign assets that held domestically is estimated using money demand equation with ratchet mirrors. Iranian holdings of US dollar assets estimated using DOLS approach. MRS-GARCH is used to capture dynamics of speculative attacks and Beta-Skew-t-EGARCH model is used to generate economic uncertainty variable using exchange rate, interest rate, inflation and economic growth variables. The results of model estimation based on CCR approach indicate that economic sanctions and speculative attacks have positive and significant effect on currency crisis.

Inflation in Iran: an empirical assessment of the key determinants

“…The potential impact of sanctions on Iran's macroeconomic condition is also a unique factor (Kandil and Mirzaie, 2021); their effects on inflation are explored in several studies. For example, Pourshahabi and Dahmardeh (2014) examine the joint inflationary effects from sanctions and speculative currency attacks. Hemmati et al (2018) also show that the intensification of sanctions exhibits significant inflationary effects, even when money supply, exchange rate and import prices are controlled for.…”

“…The potential impact of sanctions on Iran's macroeconomic condition is also a unique factor (Kandil and Mirzaie, 2021); their effects on inflation are explored in several studies. For example, Pourshahabi and Dahmardeh (2014) examine the joint inflationary effects from sanctions and speculative currency attacks. Hemmati et al .…”

The impact of currency crises on economic growth and foreign direct investment: The analysis of emerging and developing economies

“…Similarly, the neo-Keynesian framework is used by Pourshahabi and Dahmardeh (2015) to analyze the impact of economic sanctions and speculative attacks on the development of currency crises in the case of the Iranian economy. Researchers introduce a new model of currency crises within the framework of neo-Keynesian perspectives and estimate this model using the Canonical co-integration regression approach.…”