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.