Investigating the effects of oil, gold and currency exchange rate on the country's business cycles in recession and boom regimes using a rotational model and changing the Markov switching regime

Rahmani Far, Mehrdad; Damankeshideh, Marjan; Hadinejad Darsara, Manijeh; Abbasi, Ebrahim

doi:10.22096/esp.2022.136173.1410

Investigating the effects of oil, gold and currency exchange rate on the country's business cycles in recession and boom regimes using a rotational model and changing the Markov switching regime

Document Type : Original Article

Authors

Mehrdad Rahmani Far ¹

Marjan Damankeshideh ²

manijeh hadinejad darsara ²

Ebrahim Abbasi ²

¹ PhD student in Economics of Oil & Gas/ Department of Economics, Islamic Azad University Central Tehran Branch, Tehran, Iran.

² Assistant Professor, Department of Economics, Islamic Azad University Central Tehran Branch, Tehran, Iran.

10.22096/esp.2022.136173.1410

Abstract

In this study, we seek to examine the effects of oil, gold and currency prices on the country's Business cycles. For this purpose, using the rotational model and change of Markov switching regime, we study the effect of oil and monetary shocks, currency fluctuations and financial crises and the gold market on the country's trade cycles. The research period is from 1985 to 2018. The results of the Markov model estimates for the recession and boom period show; In the second regime, the boom period, with the increase of positive oil shock, the production gap decreases, and with the increase of monetary shock and financial crises, inflation and increase of gold price in the recession and boom regime, the production gap increases. Economics In the present study, there are 17 periods of recession versus 16 periods of prosperity in the first model, 15 periods of recession versus 18 periods of prosperity in the second model, and 17 periods of recession versus 16 periods of prosperity for the third model. Also, based on the results of transfer probability functions, it is observed that the survival rate during the recession in Iran has a high probability and all these factors increase the risk of investing in industrial projects and lead to an increase in the production gap.

Keywords

oil prices

gold

currency

trading cycles

Markov switching regime change model

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