Relationship Between Output Gap and Stock Price Bubble in Iran: Application of Structural Vector Autoregressive Model with Time-Varying Parameter (SVAR-TVP)

Document Type : Scientific paper

Authors

1 Department of Economics, Gazvin branch, Islamic Azad University, Gazvin, Iran

2 Department of Economics, Qazvin Branch, Islamic Azad University, Qazvin, Iran

Abstract

If there is a consensus about the existence of a bubble in the Tehran Stock Exchange, there is not much consensus about the time of its formation and evacuation. In addition, there is much disagreement about the reasons for the formation and effects of the collapse of the bubbles and its impact on the nominal and real sectors of the economy and its channels of influence. Therefore, identifying the time of formation, collapse and factors affecting the formation and collapse of bubbles and their impact on different sectors of the economy is questionable and research. For this purpose, in this study, the timing of the formation of stock price bubbles in the Tehran Stock Exchange and the impact of the production gap on its formation during the period 2004 to 2020 has been investigated. During the period under review, the stock market in three different periods in 2004, 2011 and 2018 has witnessed a price bubble. Also, the results of the study of how the output gap affects the stock market bubble, which was done using the TVP-SVAR method, indicate that the output gap is effective on the fundamental part of the stock price and its ineffectiveness on the bubble sector. Meanwhile, the effect of stock prices on the output gap from the wealth channel is positive, and as the market grows, this channel will be strengthened.

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Main Subjects

References

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Macroeconomics Research Letter
Volume 17, Issue 33
April 2022
Pages 137-173

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History

  • Receive Date: 24 June 2021
  • Revise Date: 19 March 2022
  • Accept Date: 18 April 2022

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