The sources of Iran's Business Cycles

Abstract

A business cycle is, in fact, fluctuations of macroeconomic variables and gross domestic product. These fluctuations play a substantial role in any country. Prosperity and depression have been the most impressive problem in Iranian economy during the last decades so government and politicians have always sought a remedy for alleviating its negative effects like inflation and unemployment. This study analyses the underlying causes of Iranian business cycles using structural auto regression (SVAR) in the period between 1965-2009. The findings of this research show that business cycle in oil exporting countries is affected by changes in oil revenues. To identifying how oil shocks spread through different variables we use Bernanke and Sims (1997) technique, imposing a set of long-run economic restrictions that are added to purely statistical restrictions of VAR. In the end, the hypothesis of the thesis verifies that the effect of fiscal policy in generating business cycles is much more than monetary policy and technological shock. But, bear in mind that the effect of technology shock in Iranian economy, in general, could not be ignored