Investigating the Impact of Iran-Germany Business Cycle Synchronization on the Friction and Depth of Financial Markets in Iran (Markov Switching Bayesian VAR Method)

Document Type : Research Paper

Authors

1 Ph.D. Candidate in Economy, Faculty of Management and Economic, Islamic Azad University, Kerman, Iran

2 Prof. in Economic, Faculty of Management and Economic, Shahid Bahonar University, Kerman, Iran

3 Assistant Prof. in Economic, Faculty of Management and Economic, Islamic Azad University, Kerman Branch, Iran

Abstract

The synchronization of business cycles is one of the latest issues that has been raised recently in the field of international trade as economic integration between countries has increased. Accordingly, considering the impact of the flow of business cycles on the economy of Iran and the process of integration of domestic market with the international financial markets, it is important to determine the impact of their business cycles synchronization and the effect of synchronization on the friction of financial markets and the financial depth. Due to the formation of business cycles and the process of friction and financial depth, the Switching Bayesian VAR (MSBVAR) method was used. The results showed that the synchronization of trade cycles between Iran and Germany during the 1985-2015 indicates the high coincidence and symmetry between the two business cycles. It was also found that the financial friction plays a significant role in justifying the degree of synchronization of business cycles during global financial crises. The regime 1 (the recession) has been more stable than the regime 2 (inflation) and it is highly probable to remain within the regime 1.
 

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References

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Financial Research Journal
Volume 19, Issue 3
2017
Pages 341-364

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