The impact of international sanctions on interest rates as a measure to avoid the international sanctions has received less attention. Defensive interest rate is defined as fluctuations in interest rates due to speculation. These behaviors are more prevalent under international sanction conditions, especially in foreign exchange transactions. Thus, it is possible to pose the question of how the optimal interest rate should evolve in sanctioned economies when sanctions are being applied.

In this research, first, a dynamic programming model is used to define the intensity of international sanctions as a function of trading time conditions. From the solution of this research model, a new concept of defensive interest rate is introduced in terms of defensive interest elasticity, which is estimated with the help of the sanctions intensity parameter. Next, following the methodology developed by the authors, the sanctions intensity stochastic variable is calculated by summing the numbers of different sanctions according to version 4 of the Global Sanctions Database. To estimate the sanctions intensity parameter for the period 1979 to 2023 for Iran and 1993 to 2023 for Russia, the AR (1) model was selected among the Box-Jenkins models, in Eviews software. According to the research findings, if the intensity of sanctions increases by one percent in Iran and Russia, the interest rate should decline by 0.89 and 0.97 percent, respectively. The findings indicate that in Russia, there have been more periods of decreasing interest rates, compared to Iran, when sanctions were intensified.

This article was submitted 17.08.2024