Price Fluctuation of Oil and Its Macro¬-Effect on Iranian Economy (1988-2005)

In this study we have reviewed the changes in oil price and its macro-effect on Iranian Economy, by vector-autoregressive (VAR) method with seasonal data for oil price and other variables in the above period.The result from the model of estimation and also interpretation of impulse response (IRFs) and variance decomposition (FEVDs), shows that there is a meaningful relation between oil and other variables.The government expenditure and money supply is highly affected by oil, and positive shock of oil price will weakens the tradable sectors and strengthens non-tradable sectors in the economy. Also, through price increase of consumable imported goods and the increased cost of foreign input will positively and continuously affect the consumer price index. Due to dependency of internal production to import, the economy will face inflation which is caused by external factors.