Evaluating the Neoclassical Growth Model in Explaining Iranian Business Cycles

In this paper، a Neoclassical Growth model was applied to explain the Iranian business cycles. We use the quarterly time series of consumption، investment and government expenditure to extract the business cycles. The fluctuations in investment and government expenditure are considerably larger than fluctuations in output. Then the model، augmented with technological and government expenditure shocks، is calibrated to Iranian economy. The simulated business cycles from the model are compared with the business cycles from time series. The results show the model can reproduce the business cycles in investment. However، the model does poorly in replicating the business cycles in consumption. Moreover، the model suggests that the main source of business cycles in Iran economy is technological shocks، and government expenditure may not cause significant fluctuations in real activities.