The Application of Wavelet Coherence Analysis in Discovering the Nexus Between Oil Price Dynamics and Cyclical Behavior of Fiscal Policy in Iran

Over the years, oil has demonstrated its importance as an economic factor that the world economy must always consider. thus, oil price effects are always fascinating and the oil-price impact has a subject of interest among researchers and policymakers. movements in crude oil prices affect the economy of oil-producing countries such as Iran because the main source of government revenue depends on oil revenues. In this regard, the present research, using the wavelet coherence approach and time-frequency domain analysis, provides new insight into the relationship between oil price dynamics and leading macroeconomic variables, specifically, the cyclical behavior of fiscal policy in Iran over the years 1357-1399 (1978-2020). The findings reveal a high level of coherence between the variables and these links are changing through time scales and frequency domains. The results of wavelet coherence indicate that although the fiscal policy is counter-cyclical in some frequencies, it has generally been pro-cyclical.