The Impact of ICT Shocks on Business Cycle Some Evidence from Iran

Abstract

n this paper, we investigate empirically the effect of Information and Communication Technologies (ICT) and monetary shocks as sources of business cycle in the economy of Iran. We follow of Gali's (1999) who proposes identifying technology shocks by a bivariate structural vector auto regression (SVAR) model consisting of labor productivity growth and working hours. We expand bivariate model into the four-variable model by using annual data covering the period of 1974 - 2008. Therefore, the nontechnology shocks decomposed into labor supply and monetary shocks. The technology shocks also decomposed into two sector-neutral technologies and the investment-ICT shocks. Additionally, we also employed simulating variance decompositions (VDC) and impulse response functions (IRF) for further inferences. We've reached to this point that productivity-enhancing ICT shocks reduce working hours and increase Total Factor Productivity (TFP). Although productivity-enhancing technology shocks are an important source of economic growth in Iran, they may have a negative impact on employment.