Dynamics Relationship between Credit Cycles and Currency Crises in Iran with a Time Varying Parameter Vector Auto-Regression Approach

The credit cycles have a major effect on the behavior of economic enterprises during periods of boom and recession. The change in the behavior of economic enterprises leads to its contagion to real and nominal sectors in the economy. On the other hand, the currency crises have influenced the investment decisions of various economic sectors. The purpose of this paper was to examine the relationship between credit cycles and currency crises in Iran. In this study, the variable coefficients approach was used over time for the period of 1991-2020. In this regard, credit cycles and currency crises have been used by the Christiano-Filtzgerald filter and the adjusted index of currency crises. The results showed that there has been a coincidence between credit cycles and currency crises in the country. Also, the results showed that the currency crisis had a negative effect on the GDP and economic growth in the country. In addition, it was observed that credit cycles have led to economic growth during boom times and decreased economic growth during recessions.