Investigating the relationship between financial shocks and business cycles of Iran's economy during the period (1981-2021)

Subject Areas : Computational economics

Mohammad Hassan Fotros ¹ , Mostafa Omidali ²

1 - Economics, Bu-AEli Sina Univ.
2 - Ph.D. in Economics Department of Economics, Faculty of Economics and Social Sciences, Bu Ali Sina University, Hamadan, Iran

Received: 2022-11-18 Accepted : 2023-01-10 Published : 2022-11-22

Keywords: , , Financial Shocks, , Hadrik-Prescott's Filter, , Asymmetry, , Business cycle, , Iran's Economy,

Abstract :

Factors such as expectations, lack of financial flexibility, the existence of uncertainties in the economic environment and other economic and non-economic indicators have an impact on the creation of business cycles. The large volume of government activities in Iran's economy indicates that the government has a fundamental influence on the stability and instability of business cycles in Iran. The purpose of the present study is to investigate the relationship between financial shocks and commercial periods of the Iranian economy during the period 1981-2021. First, by using Hadrick-Prescott filter method, business cycles of Iran's GDP are extracted, and by using VAR model, the causality relationship between financial shocks and business cycles is studied. The research results show that Iran's economy has experienced five periods of recession and five periods of prosperity during the studied period. These courses are symmetrical in terms of length and depth. The results of the VAR model show that there is a two-way causality relationship between the government expenditure shock and the tax shock with the business cycles of GDP. Therefore, the economic prosperity can reduce the financial shocks of the government and subsequently improve the budget forecast and reduce the budget deficit.