Credit Cycles of the Iranian Economy

There is a lot of evidence on the relationship between business cycles and financial. We study the credit cycles of the Iranian Economy and their relationship with the business cycles. The literature suggests using various indicators for credit cycles. We use the ratio of banking loan to the private sector to potential nominal GDP as the indicator of credit status. Contraction and expansion period are identified after removing the long run trend and short-term fluctuations. The correlation between the cycle of credit status indicator and the business cycles indicator is more than 41%. Statistical analysis of the concordance of the periods of recession and expansion of macroeconomics (business cycles) with the periods of contraction and expansion of credit show 70% concordance. When we limit the results to the 1376-1393 (1997-2014) period, credit contraction leads recession for one quarter. In the end, we study the credit status in different economic sectors and also in banking system resources (deposits). Credit cycles of economic sectors and deposits cycle show that real sector volatility may cause credit cycles through deposit volatility.