The Non-linear Relationship between Uncertainty and Non-oil GDP in Iran

In this study, the relationship between uncertainty and non-oil GDP is analyzed. A Threshold Autoregressive (TAR) model with exogenous variables is estimated by using Iranian Economy's data of 1988:2-2008:3. The uncertainty index is calculated by using ARCH modeling and Factor Analysis. The results show that there is a non-linear relationship between non-oil output and uncertainty in Iran. As the uncertainty passes the estimated threshold level, it reduces non-oil GDP, especially the output in services sector.