Money and Inflation in the Islamic Republic of Iran (original) (raw)
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Survey the Dynamic of Inflation in Iran Since 1990
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The monetarists, in explaining the dynamics of inflation, have emphasized the growth rate of the money supply. However, there is extensive empirical evidence to validate and validate this monetary logic. There are a number of criticisms already suggest that the monetarists may exaggerate the emphasis on the role of money supply in raising inflation. Therefore, the purpose of the present study is to investigate the extent to which inflation is caused by monetary phenomena in Iran Method: In this paper, the impact of money supply and other factors influencing inflation including production, exchange rate and international oil prices are investigated. The analysis was performed using the instantaneous reaction functions and SVAR econometric models. Results: The empirical results generally indicate that money supply is a key source of inflation in Iran. According to the research findings, all of the estimated variables have a key role to play in increasing inflation in the economy. By comparison, real output has the lowest share, especially in the short run, while inflation is more sensitive to short and long run money shocks Conclusion: The overall conclusion of the present study is that inflation in Iran is relatively a monetary phenomenon rather than an actual factor
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The study of determining the factors affecting inflation or consumer price index has been conducted by many macroeconomic economists nationally as well as internationally. In this paper, we assess the external determinants of inflation dynamics in Iran. For this purpose, we use an OLS single equation model and a vector error correction model (VECM). Results of the analysis reveal that money supply, exchange rate, import price index and intensification of sanctions are contributed in raising general price index in the long run. Long-run elasticity of inflation with respect to money supply, exchange rate, effective tariff and import price index are 0.25, 0.118, 0.087 and 0.71. Moreover, in every year that the severity of sanctions has increased, inflation increases with amount of 0.084 (or 8.4%).Results of OLS single equation model show that only 21% of the domestic inflation variance in short run is explained by the independent variables. Iran's inflation is driven mostly by exch...
The Effect of Inflation Uncertainty on Money Demand in Islamic Republic of Iran
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In this paper, we measure and analyze the effect of inflation uncertainty on money demand and quasi money in Islamic republic of Iran based on time serious quarterly data from 1990:2-2010:3.This paper uses an EGARCH method to model inflation uncertainty in Iran. We also used VECM method to estimate a long run relationship between demand for real money and explanatory variables. Our result show that inflation uncertainty has effect on money demand and quasi money in Iran and increase in inflation uncertainty leads to decrease in money demand. In other words, by increase in inflation uncertainty, economic agents prefer to less demand for money, because in high uncertainty condition, people prefer to use those asset has less risk of maintenance.
Inflation and Money supply growth in Iran: Empirical Evidences from Cointegration and Causality
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nflation has been one of the main economic problems over the last three decades in Iran. This paper investigates the growth of money supply (in terms of M1 and M2) and price nexus for Iran, through the cointegration and causality techniques. The main purpose of this paper is to determine whether inflation in Iran has been caused by excessive monetary expansion over this period, or whether the money supply has merely been passive in the inflationary process. It covers the seasonal data from 1988 to 2010. The Johansen cointegration test results suggest that the variables are not cointegrated. The findings also indicate that there is a bidirectional relationship between money supply (in terms of M1 and M2) and price level (in terms of CPI and WPI) during the period under study. These findings are consistent with the view that in a high inflationary economy, inflation does have a feedback effect on money supply growth and this generates a self-sustaining inflationary process.
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This paper examines the major determinants of inflation in Iran using annual time series data (1971 to 2006) by applying the ARDL approach. Taking into account the special characteristics of Iran's economy and by considering recent empirical studies in the context of inflation, an empirical model has been constructed which emphasizes the effects of liquidity, the exchange rate, GDP, the expected rate of inflation and imported inflation factors along with the dummy variable presenting the effect of Iran/Iraq war on Iran's economy.
African Journal of Business Management, 2013
Monetary policy is one of the main instruments used by government for obtaining macroeconomic goals. Increasing the level of output and employment is the main purpose of Expansionary monetary policy. In this paper, we examine the short-run and long-run effects of money (M2) on inflation and GDP in Iran with four variable vector error correction model. We use quarterly data between 1988Q1 and 2005Q4. Results of estimation indicate that in the short-run M2 has no acceptable effect on output and inflation but in long-run excess supply of money lead to inflation. Impulse response functions imply that effects of money shock remain for 2.5 years but inflation fluctuation is more than one output.
Inflation and Cost Push in Iran's Economy
iranian economic review, 2013
There have been two broad theories of inflation, namely the demand-pull theory of inflation (that is nowadays mainly the monetary theory of inflation) and the cost-push theory of inflation. The mainstream macroeconomics views inflation as a monetary phenomenon in the long run. Iran has experienced double-digit rates of inflation for about four decades. Our main aim is an explanation for the long-run movements in the rate of inflation. We have used the raw data and the filtered data on the rate of inflation and the growth rate of the money supply to show that there is a long-run relationship. Also, we have used cointegration VAR method to show that there is a long-run relationship between the price level and the money supply but not between the price level and the cost-push factors. The empirical findings are not inconsistentwith the monetary theory of inflation in Iran.
Inflation in the Islamic Republic of Iran: Apply Univariate and Multivariate Cointegration Analyses
ijbssnet.com
This paper examines the factors that explain and help forecast inflation in Iran. A simple inflation model is specified that includes liquidity (M2), real GDP and import prices, as well as the wheat support price as a monetarist approach. We have used multivariate and univariate cointegration analyses and error correction model (ECM) to determine the effect of liquidity (M2) and other variables on inflation in long run and short run. Quantitative estimates based on the time series annual data from 1961 to 2007, indicate that liquidity (M2) as well as real GDP and import prices have a significant effect on inflation in long run. It is also important that the long run estimated coefficients in ARDL approach the point of view of size element with the Johansen and Juselius (1990) maximum likelihood cointegration approach is symmetrical. The results of ECM show that estimated coefficients of model in short run are less than estimated coefficients in long run. The coefficient of the error correction term (ECT) is equal to -0.31. According to this estimation, speed of adjustment is slow. In addition, the ECM only can explain 85 per cent of fluctuation of prices. JEL Classifications: E31; C22; C32
Thresholds effect of money growth on inflation in Iran
This paper surveys the effects of money growth and economic growth on inflation in Iran. We use Threshold Vector Error Correction Model (TVECM) for two sets of bivariate series inflation-money growth and inflation-economic growth separately and estimate the parameters of TVECMs by quantitative econometric software R 3.1.0. The estimation results based on the sample of data 1990:Q1 to 2013:Q4 show the long-run equation with threshold value 0.028 for bivariate series inflation-money growth. In the short-run, money growth has no effect on the inflation rate if economy switches to the low-inflation regime (the quarterly inflation rate being less than 2.8 percent) but it has significant positive impact on inflation at high-inflation regime Estimated threshold value for bivariate series inflation-economic growth is 0.073 and the high inflation rate above this threshold value, in contrast to low inflation rate, has positive effects on economic growth in the short-run. The obtained results support the view that inflation rate dynamics may be different when economy switch to the different inflation regime.