Estimating the Impact of Economic Sanctions on Price Levels in the context of Economic Resilience; Time Varying Parameter Approach (TVP)

Economic sanctions with creating turmoil in the economy, raising prices and causing public discontent. On the other hand, the effect of sanctions depends on the economic structure of the target country, so that the worse the economic conditions of the target country, the more effective the sanctions will be. Therefore, the purpose of the present study is to study the effects of sanctions on the level of prices and identify the factors that influence the severity of sanctions in the Iranian economy. Therefore, the purpose is to study the effects of sanctions on the level of prices and identify the factors that influence the severity of sanctions in the Iranian economy. For this purpose, time series data of consumer price index, oil-free GDP, value of imported goods, liquidity volume, informal market exchange rate during 1977-1996 were used. In order to estimate the impact of the sanctions, Index of sanction’s hazard extracted using the fuzzy AHP method in the first step. Then, in the second step, the effect of this index is estimated on the price level using a time-varying parameter approach that is highly capable of considering structural changes in time series. The empirical findings of the study indicate that sanctions have not had a significant effect on price levels until 1987, but that sanctions have increased prices in recent years. On the other hand, unfavorable conditions also exacerbate the effects of the price level sanctions, so that in recent years the most severe sanctions have been imposed on the Iranian economy, a large budget deficit, excessive dependence on the Oil revenues, high private sector debt ratios, and high inflation make the impact of sanctions on the price level increase by 106, 93, 60 and 31 percent, respectively.