Examination of Real Shocks and Production Fluctuations of Iran's Economy

New economies undergo significant short-run variations in aggregate output and employment. Understanding the causes of aggregate fluctuations is a central goal of macroeconomics. RBC models consider real shocks as the main cause of business cycles. Within RBC models, the purposes of this study are estimating the real shocks of Iran’s economy and investigating its effects on the economy’s fluctuations. For these purposes, a method that is introduced by McCallum (1989) has been applied during the years 1959-2014. According to the results presented in this study, the highest amount of persistency of the real shocks is related to the oil sector then to the agricultural sector. The variability of oil sector shocks is much more than the variability of agriculture sector shocks. A periodic manner with parallel and durable fluctuations can be seen in the shocks. Negative effects are more intense than positive effects. It seems, Iran’s economy undergoes five real business cycles in 56-year of the study. Also, the production fluctuations due to real shocks are a hump-shape process. These fluctuations peak after 1 or 2 years, then decline.