Document Type : Research Paper

Authors

• Parisa Mohammadi
• Farid Askari
• Farzaneh Khalili

Department of Economics, Abhar Branch, Islamic Azad University, Abhar, Iran

Abstract

Today, in all countries, the prosperity of the capital market is recognized as one of the indicators of economic dynamism. The extension of the capital market leads to an increase in the depth of this market and in the long run, will lead to financial development, such that this financial development ultimately will lead to stable economic growth. Therefore, the main purpose of this study is to investigate the effect of economic policy uncertainty on the ratio of current stock value to GDP as an indicator of the development of the Iran capital market during the years 1991-2018. To achieve this goal, first, using the Gregory-Hansen co-integration approach, the existence of a long-term relationship between the variables of the model was tested and then the experimental research model was estimated using the dynamic least squares method. The results of model estimation showed that there was a long-term equilibrium relationship between the variables, and the inflation rate and the uncertainty of economic policies have a negative impact. Also, other variables of the research, i.e., degree of economic openness, GDP, and private sector investment had a positive and significant effect on the Iran capital market development index during the study period.

Keywords

• economic policy uncertainty
• capital market development
• structural break
• Grigory- Hansen Co-integrating approach
• dynamic ordinary least squares )DOLS(