Authors

• Hasan Dargahi ¹
• Ahmad Parkhide ²

¹ Assistant Professor, Faculty of Economics and Political Science, Shahid Beheshti University

² Senior Economist

Abstract

Since the advent of early business cycles theories based on self-sustaining behaviors, many theories and models have been suggested to explain causes of cyclical fluctuations. Although in the 1960s, with the acceptance of Keynesian ideas there was a less interest to identifying the sources of disturbances, today the debate over the sources and propagation of economic fluctuations still rages among macroeconomists.
   This paper uses a multisectoral business cycles model for identifyingication the role and importance of aggregate and sectoral shocks in business cycles of the Iranian manufacturing sectors. Aggregate shocks involve innovations in oil revenues, money supply, government expenditures, and real exchange rate, and productivity shocks are connsidered as sectoral shocks. Our results indicate that all types of shocks are important, but aggregate shocks are the dominant source of sectoral output fluctuations. Variance decomposition of the manufacturing output growth indicates that 85.4 percent of aggregate output disturbances can be explained by aggregate shocks. Therefore, macroeconomic policies inconsistent with industrial development requirements could disturb endogenous growth of the Iranian manufacturing sectors via weak total factor productivity.  At the presence of the exogenous impulses, while aggregate shocks are significant sources of output fluctuations, it seems disturbances are threatening the long run economic and industrial growth, even in the oil boom periods.

Keywords

• Business Cycles
• Aggregate shocks
• Sectoral shocks
• Manufacturing sectors
• Total Factor Productivity
• Economy of Iran