Survey of the Impacts of Aggregate Supply and Demand Shocks in Iran Economy

We interpret fluctuation in GDP and unemployment rate as due to two types of disturbances: disturbances that have a permanent effect on output and disturbances that don’t. We interpret the first as supply disturbances, the second as demand disturbances. This paper surveys the effects of demand and supply disturbances on variables GDP and unemployment in Iran economy. So with using Blanchard-Quah econometric technique, shocks will be divided into two sections: the supply shocks and demand shocks. Then, we survey the effect of these two shocks on GDP and unemployment in Iran with using Structural Vector Auto Regressive (SVAR) method, impulse response function and variance decomposition. Results report that supply shocks proportion in explaining the GDP and unemployment fluctuation are 45/5 and 30/87 and the demand shock proportion are 54/56 and 69/21.