The Reasons of Business Cycles Emergence in Iran and the Strategies for Getting Out of Them

Abstract

Since Iran's economy, like many other countries, has experienced the periods of prosperity and recession, paying attention to the casual relationship between macro-economic variables and business cycles can be considerable in policy makings in economic affairs. In this way this article is to study the reasons of business cycles emergence in Iran's economy in the time period of 1350-1390 of Iranian calendar using the approaches of VAR and ECM models. Results show that the inflation does not maintain the ability to explain the business cycles; on the other words the inflation is not the cause of business cycles but the business cycles cause inflation, the point is approving the business cycles hypothesis in causality from production to prices. Therefore it can be mentioned that a unidirectional causality relationship exists from business cycles towards inflation. Moreover as about the Granger causality between money stock and business cycles in Iran's economy the existence of a bidirectional causality relationship between money stock growth and business cycles has been shown so that both the money stock growth leads to business cycles emergence, besides the business cycles occurring is explaining the money stock changes in the country.

Keywords: Business cycles, monetary stock, Granger Causality, Vector Autoregressive (VAR).