Identifying the effects of sanctions on the Iranian economy using newspaper coverage

Abstract

This paper focuses on the identification and quantitative estimation of sanctions on the Iranian economy over the period 1989-2019. It provides a new time series approach and proposes a novel measure of sanctions intensity based on daily newspaper coverage. In absence of sanctions, Iran's average annual growth could have been around 4-5%, as compared to the 3% realized. Estimates of the proposed sanctions-augmented structural VAR show that sanctions significantly decrease oil export revenues and result in substantial depreciation of Iranian rial, followed by subsequent increases in inflation and falls in output growth. Keeping other shocks fixed, 2 years of sanctions can explain up to 60% of output growth forecast error variance, although a single quarter sanction shock proves to have quantitatively small effects. KEYWORDS direct and indirect effects of sanctions, forecast error variance decompositions, impulse responses, measures of sanction intensity, sanctions-augmented structural VAR This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.

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