The Effects of Oil Price Fluctuation on the Macroeconomic Performance in Iran

The main purpose of this paper is to estimate the effects of oil price fluctuation on macroeconomic performance in the Iranian economy. To do so, the cointegration approach along with response function and variance decomposition techniques are used. The results show that one of the main source of fluctuation in macroeconomic variables is the oil price shocks. 20 percent of GDP, 30 percent of unemployment rate and 60 percent of CPI fluctuation stem from oil price shocks. This finding also indicates that oil price shocks which affect the stability of economic activities in Iran result in a departure of actual rate of mentioned variables from their equilibrium level in the long run.