The effect of Financial and Real Assets on Business Cycle in Iran: STAR Approach

The change in the price of real and financial assets is one of the factors that cause business cycle through different channels such as consumption, investment, firm’s balance sheet, and net export. With attention to aware of factor causing on business cycle in Adopting Economic policies, in this paper, we investigated the effect of stock market, house price, exchange rate, and liquidity on business cycle using linear and nonlinear LSTR models and season’s data in the period of 1991-2018. In nonlinear model, which is more suitable for explaining the relationship between variables in comparison with linear model, the cyclical component of the exchange rate selected as the transition variable and the value of the transition parameter was estimated to be 83.89 rials. Considering the estimated value of the transmission parameter, in the period, there were two regimes in the Iranian economy, low-exchange rate regime and a high-exchange rate regime. The results indicate that in both regimes, an increase in stock prices and liquidity cause economic expansion. Also, an increase in house prices and a decline in the exchange rate in the first regime put the economy at an expansion phase and put the economy at a recession phase in the second regime. Therefore, in order to expanding the economy, it is suggested that, on the one hand, the exchange rate be kept low and, on the other hand, increase housing price, stock price and liquidity.