The Effects of Economic Sanctions and Speculative Attacks on Inflation

Abstract

This paper surveys the persian monetary crises due to economic sanctions and speculative attacks that leads to high inflation. Economic sanctions are associated with various forms of trade barriers and restriction on financial transactions. Among the most influential sanctions on Iran's oil export and central bank sanctions are noted that their Aims to reduce Iran's oil revenues and Devaluation of the national currency of Iran. New economic sanctions have greatest effect on foreign currency transactions and foreign currency speculative attacks can lead to devaluation of the national currency to be stimulated inflationary pressures. This study introduced a new inflation function based on Neo-Keynesian framework in the case of oil exporting counties. Also dynamics of speculative attacks based on Markov Regime-Switching GARCH (MRS-GARCH) model is used to capture some of the exchange rate dynamics associated with the speculative attacks. The results of co-integration vector estimation using the FMOLS approach indicated that speculative attacks have positive effect on inflation but sanctions affect inflation indirectly through speculative attacks, stagnation, currency crisis, expected inflation and etc.