Investigating the relationship between bank credits and business cycle based on frequency domain analysis

The economic experiences of the world, especially in the last two decades, prove this point, that the economic stability of countries owes to the efficiency of banking indicators and their financial stability. The importance of a suitable and efficient financial system is not hidden from both politicians and financial thinkers. Therefore, in the last two decades, the effectiveness of banking indicators and financial stability as one of the main goals of the economic system is of interest to many policymakers and thinkers. The banking industry is considered one of the most important sectors of the country's economy, which can provide grounds for the growth and prosperity of the economy by organizing and properly managing its resources and expenses. Considering the relationship between the functioning of the banking system and the macroeconomic sectors of the countries, any instability and crisis in it can cause fluctuations and disturbances in macroeconomic variables, especially production.

Credit in the field of finance means granting the right to possess or use goods and services without immediate payment for them. No money will be paid on credit. In economies of trade of goods and transactions based on direct exchange of goods and services, the concept of credit is quite evident. In general, credits are divided into three parts; 1) consumer credit, 2) commercial credit and 3) bank credit.The business cycle is a kind of changes and fluctuations in economic indicators, which starts with the spread of prosperity and ends with recession, and in the next period starts with recession and ends with boom. This sequence of fluctuations, repeatability may last a year or more than 10 years. In fact, commercial period refers to different periods of reversibility of positive and negative movements, and this concept is considered in the definition of commercial advertising. The business cycle includes four stages; Improvement, prosperity, recession and crisis. With the growth of production and employment, the stage of recovery begins, and when the economy is operating at its maximum capacity near full employment, the stage of economic prosperity has occurred. With the decrease in the GDP growth and the increase in the unemployment rate, the stage of economic recession occurs and finally; Severe economic recession causes economic crisis in the society.In the literature of sustainable development, the optimal and legal development of financial and monetary markets plays an important role. On the other hand, financial and monetary markets are the most important source of credit for economic enterprises in terms of working capital and new investment for the development of economic enterprises. Credits are the temporary transfer of purchases from one natural or legal person to another natural or legal person. Economic enterprises use credits to cover the cost of providing their required inputs, including; They provide labor, capital inputs, technology and even the purchase of raw materials. Therefore, credits have a significant impact on the growth and development of investment and production activities. Therefore, credits have direct and indirect effects on the production and employment of economic enterprises, and therefore, the effect of credits on production fluctuations in the form of a business cycle can be considered. The optimal use of credits in economic enterprises causes the growth of production and employment, and in the business cycle sector, it fuels economic prosperity. On the contrary, the incorrect use of credits in the economy slows down the growth of production and employment in economic enterprises and the beginning of the period of crisis and economic stagnation in the business cycle.

The research method is of the causal correlation type and based on the analysis of time series data. The purpose of this research is to provide a macroeconomic model according to the literature on the volume of bank loans and the formation of the business cycle, taking into account the conditions of Iraq, using the Granger causality test. Therefore, using the study of Gomez et al. (2015), the research model has been fitted. The spatial scope of the research is the collection of the main variables of the Iraqi macroeconomics and the collection of data required for estimation from the World Bank database during the period of 2008-2021.

Before the regression, in order not to encounter false regression, all the research variables were subjected to the Dickey-Fuller test, and the results of the significance of all the research variables were at the proven level, and this result is the permission to use the VAR method. In the following, Granger causality test was done to test the first hypothesis of the research, and long-term estimation results were used to test the second hypothesis. The results of the hypothesis test show that, according to the Granger causality test, the relationship between bank credits and the business cycle is bidirectional. The mentioned result is in line with the research of Gomez et al. (2015), Qasim Hossein et al. (2022). Also, the results of the long-term estimation of the research model of the relationship between bank loans and the business cycle are positive and significant. The mentioned result is not in line with the research of Gomez et al. (2015), Georgios et al (2020). In the research of Jafari Samimi et al. (2016), the asymmetric effect of monetary policy and bank credit on business cycles in Iran was confirmed, which indicates the existence of severe inflationary effects in the Iranian economy, while in Iraq, the effect of bank credit on the cycle Commercial is positive, which indicates that the Iraqi economy does not experience the same inflationary conditions as in Iran, and the appropriate allocation of bank credits will increase the gross domestic product.