The Dynamic Business Cycle Co-movements: The Case of Iran with Other ECO Countries

The new international economic theories indicate that the business cycles co-movements are important in order to develop regional trade agreement (RTA), in particular optimal currency area (OCA). This paper investigates the major determinants of Dynamic Business Cycle Co-movements in Iran with other ECO countries introducing a new and dynamic cross correlation index, during 1993-2012 and using System GMM methods. The results show that an increase of trade and financial transactions causes to strengthen business cycle synchronization in Iran with other ECO countries. Also, more industrial similarity between a pair of countries induces the higher bilateral co-movements. Likewise, fiscal and monetary policies similarities are other determinants.