Interaction between Financial Cycles and Business Cycles in Iran: A Bayesian Approach

Investigation of effective factors in business cycles in Iran, from 2009:3 to 2018: 3, based on the Bayesian approach with emphasis on the effects of financial cycles, is the major purpose of this paper.  At first, using the Hodrick-Prescott filter, we extract business and financial cycles, and then we study the causal relationship between financial and business cycles, using the Granger causality test. There is a two-way causal relationship among the variables (GDP, Tehran Stock Exchange index, land value (per square meter), current government and non-government credits, oil revenues, and current government payments), except for the credits and business cycles. Based on the Bayesian approach, we found that housing sector cycles have negative and current government payment cycles have a positive effect on the business cycles, and both of them are significant. However, Tehran Stock Exchange index, current government and non-government facilities and oil revenues do not have a significant effect on the business cycles.