Abstract
The effect of temporary and permanent shocks of oil revenues on the concurrence of trade cycles between Iran and selected OECD countries has been investigated using the data series of the period 1985–2019. For this purpose, first, business cycles and temporary and permanent shocks of oil revenues are extracted using Hodrick-Prescott (HP) filter and Blanchard-Quah technique, respectively. Then, the relationship between business cycles and model-independent variables is evaluated by the ARDL method. The results show that the main cause of business cycle fluctuations is temporary shocks to oil revenues, also, government expenditure variables and permanent and temporary shocks to oil revenues in the short and long term have a negative and significant effect on business cycles, and the exchange rate variable has a positive and significant effect on business cycles. Estimation of business cycle synchronization index shows that Belgium, Germany, Greece, Japan, Spain, and Turkey have had business cycles synchronization with Iran. And Germany with a correlation coefficient of 0.42 has the most synchronization of business cycles with Iran.
Highlights
Gross domestic product (GDP) is one of the most important macroeconomic performance indicators because it shows the size of a country’s economy and its production capacity
Business cycles are extracted using the Blanchard-Quah technique of temporary and permanent shocks to oil revenues. en the relationship between business cycles and model-independent variables is evaluated and analyzed by the Autoregressive Distributed Lag (ARDL) method. e results of this study show that the main cause of fluctuations in business cycles is temporary shocks oil revenues, so that, in all periods, temporary shocks in oil revenues have had the largest share in creating fluctuations in business cycles
It is important to be aware of the impact of oil shocks on business cycles in order to select appropriate policies to prevent the devastating effects of these shocks in countries with oil-dependent economies. e results of the present study show that the main cause of business cycle fluctuations
Summary
Gross domestic product (GDP) is one of the most important macroeconomic performance indicators because it shows the size of a country’s economy and its production capacity. A period of prosperity begins almost simultaneously in most economic activities, followed by recession and contraction, which slows down economic activity. E most common concept of business cycles is the definition of Lucas [3]. Long and Plosser [2] consider business cycles as regular fluctuating patterns of macroeconomic variables such as production, consumption, investment, employment, and prices, which include recessions and booms around the path of long-term economic growth, the so-called trend.
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