The Analysis of Business Cycles in Iran Economy Using Hodrick-Prescott Filter

In this paper the Hodrick-Prescott filter is used to decompose real GDP for Iran into long-run trend, business cycles and irregular movements. Then, following the work of Lucas (1977), the stylized facts of business cycles identified, including the co-movements among the variables, their relative variability and their persistence over the cycle. This inquiry covers the period 1338-84 and uses yearly data on key economic aggregates. Some of the results confirm Lucas’ view of the business cycle, that is, the general co-movement of the series and the higher volatility of investment and durable consumption. It has been revealed in the analysis that consumption, Investment and total export are pro-cyclical and coincident with the cycles. But total import, export of oil and non-oil, durable consumption, investment in machinery, durable consumption and government expenditure are pro-cyclical and leading the cycles. The analysis also revealed that monetary variables showed acyclical behavior in Iran’s business cycles while prices are countercyclical. The Phenomena in Consistent With Kydland and Prescott (1990). The results of Granger Causality method indicate that oil export fluctuations may have been the major source of Iran business cycles.