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Synchronization of oil price and stock index with business cycle: Based on the Markov Switching Approach

Document Type : Research Paper

Authors

Economics, Faculty of Economics and Accounting, Islamic Azad University, Tehran Branch, Tehran, Iran

Abstract

The purpose of this study is to examine the business cycles, stocks and oil prices, and the synchronization between them. In this research, the regime of business cycles, oil prices and stock indexes in the form of two regimes of recession and boom were identified for the period 1372 to 1395(as seasonally adjusted). The results indicate that in the real sector of the economy, the length of a period of the boom is more than a recession, and the likelihood of a boom is equal to 0.92 percent and more than a regime change or the stagnation of the recession. The period of rising of the stock index is more than the period of its recession. But the period of rising in oil prices is less than the period of its recession. The results of the coincidence of variables indicate that oil price is the leading in three seasons and coincident to GDP. Also, the stock index is leading in three seasons with GDP but in the opposite direction.
The policy recommendation of this paper is that policymakers, having regard to the extent to which the real sector of the economy is closely aligned with the stock index and the price of oil, and being leading of the stock index and the price of oil in the real sector of the economy, by adopting appropriate policies, they can reduce the negative effects of fluctuations in the stock market and oil and add its positive effects.

Keywords

References
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Quarterly Journal of Quantitative Economics
Volume 16, Issue 2 - Serial Number 61
Vol. 16, No. 2, Summer 2019
July 2019
Pages 103-124
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History
  • Receive Date: 25 July 2018
  • Revise Date: 05 December 2018
  • Accept Date: 17 June 2019
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