Herd Behavior Demand and Supply Shocks on Business Cycle: An Empirical Analysis in Iran

The central objective of our paper is to empirically investigate the effect of demand and supply shocks as sources of Business cycle in the Iranian economy. In particular, this study examines the existence of herd behavior among shocks as well as fiscal, monetary, financial, technology and oil shocks in the Business cycle in Iran. In methodology, the study analyzes the herd behavior by estimating vector error correction (VECM) model using annual data covering the period of 1974 to 2008. Also, we adopt an innovation accounting by simulating variance decompositions (VDC) and impulse response functions (IRF) for further inferences. The findings support the idea that there is a strong herd behavior among shocks on business cycle in Iran.