Journal of Economic Modeling Research

Studying currency shocks impact on the stock market could be beneficial regarding to exchange rate fluctuations caused by various exchange policies in recent years. Therefore symmetrical or asymmetrical impacts of negative and positive dollar shockwaves in the market on indexes of chemical and basic metals industry are under investigation by weekly data collected since 2006 up to 2016 as these two industries have the most non-oil exports of Iran. First existence of long-term equilibrium relationship was examined by Pesaran Bound test and confirmed. Afterwards in addition to admitting asymmetric effect of positive and negative foreign exchange shocks on the indexes using WALD test, based on the results of the main model of the research which is the Nonlinear Autoregressive Distributed Lag (NARDL), effects of increasing in dollar rate on both indexes are positive and meaningful and the effect of its decreasing is meaningless. In addition the extracted coefficients indicates deeper effects of free dollar rate on the chemical index in comparison with index of the basic metals. OPEC crude oil, which is the control variable considered in this article has a direct and significant effects on both indicators on the short and long term.

Due to pension fund problems in Iran, the multi-pillar social insurance system has been released in 2017. According to this, the first pillar is regarding to low income groups and finance through the public fund. The second pillar is defined benefit and finance pay as you go. The third pillar is defined contribution and fully funded finance. Contributions are transferred to the individual account. The pension fund directors supposed to investments the accounts and to return the Contribution fund and its returns in retirement time. The main issue is that the old age pensions are not guaranteed in this plan and face with financial risk and inflation. Due to high inflation of Iran’s economy, the main challenge of third pillar plan is the inflation. This paper is main to inflation hedging in defined contribution pension plan by Investing in Tehran Stock-Exchange. By using NARDL model and 133 monthly data up to 2020 the results show that TSE index can hedge the inflation.

Introduction
Inflation, as one of the structural and chronic issues of Iran's economy, has always remained at high levels and has had widespread effects on macroeconomic variables and social welfare. The persistence of high inflation leads to instability in economic, social, and political spheres, to the extent that in some cases, inflationary instability can even result in the downfall of governments. Therefore, understanding the roots of inflation can help policymakers in designing appropriate policies to control and curb it.
Numerous studies have examined the factors influencing inflation and the role of inflation expectations.The literature review revealed that, so far, no comprehensive research has been conducted on the factors affecting inflation, with an emphasis on the nonlinear relationship between inflation expectations and budget deficits within the framework of the New Keynesian approach in Iran. Additionally, the study employs the Hodrick-Prescott filter and the Kalman filter to measure inflation expectations, which is considered an innovative approach. Furthermore, relying on the New Keynesian framework, this study examines the role of the output gap, budget deficit, exchange rate, and inflation expectations in the formation of inflation, specifically identifying the asymmetric impact of inflation expectations.
Method
The aim of this study is to examine the nonlinear effects of inflation expectations and budget deficits on inflation in Iran. For this purpose, the New Keynesian approach and the Nonlinear Autoregressive Distributed Lag (NARDL) method have been used to estimate the model over the period 1988 to 2022. Inflation expectations have been calculated using two methods: the Hodrick-Prescott filter and the Kalman filter.
Results and Discussion
The research findings indicate that the estimated models based on both filters yielded very similar results, demonstrating the robustness of the study's outcomes. Additionally, the results show that variables such as the output gap, inflation expectations, budget deficit, and exchange rate influence the inflation rate. Furthermore, inflation expectations have an asymmetric effect on inflation, where their increase leads to greater persistence and stability of inflation. Moreover, inappropriate fiscal policies exacerbate inflationary pressures by intensifying the budget deficit.
Keywords:  Inflationary expectations,  budget deficit,  inflation, Iran, NARDL.
JEL: E62, E31,H62