Test of Real Business Cycle Theory in Iran's economy



This paper tests the importance of real shocks as sources of fluctuations in iran’s economy. For this purpose, based on the work of Boschen and Mills, a set of non-monetary variables which can affect economic growth have been selected and by using an illustrative business cycle model in which the production depends on the past and current value of real shocks, the influence 01’ these variables have been studied. Based on the obtained results, the selected non-monetary variables have had a significant effect on the business cycles in Iran at the time period of 1959-1999, and introducing the monetary variables into a model with the presence of real variables have not increased the explanatory power of the model considerably.