The Effect of Economic Fluctuations and Monetary and Fiscal Policies on Business Cycles (The Case of Oil Economies and BVAR Approach)

This study was conducted to examine business cycles and identify significant factors affecting these cycles using Bayesian Vector Autoregressive (BVAR) in presence of institutional, political and global factors in five oil exporting countries including Canada, Iran, Nigeria, Norway and Venezuela during 1996-2016. Results obtained from the BVAR. Results obta Forecast Error Variance Decomposition (FEVDs) indicated that short-term GDP had the maximum value in justifying instability. In long term, the role of GDP was decreased due to increasing role of other variables so that at the end of oil shock in Canada, financial shock in Norway, and GDP shock in Iran, Nigeria and Venezuela are reasons for business cycles. Moreover, findings show that political and institutional factors have changed the role of shocks and impulses so that the impact of effective shock has decreased in instability during long term. Political and institutional factors had the considerable role in Iran and Norway, respectively. It is suggested that policymakers, before deciding on policies, first by the model used in this research examine economic and non-economic variables affecting the business cycle, and then apply appropriate monetary and fiscal policies.