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The impact of the budget deficit on inflation in the Islamic Republic of Iran

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  • Abbas Alavirad
  • Sanhita Athawale

Abstract

In this paper, we measure and analyse the impact of budget deficit on inflation in the Islamic Republic of Iran. After briefly reviewing the theoretical background, we use univariate cointegration tests, such as the autoregressive distributed lag model (ARDL) and Phillips‐Hansen methods, to study the relationship between the two in the long term. Additionally, we use the error correction model to study the behaviour of the model in the short run. Our analysis is based on time series annual data from 1963 to 1999 and our results show that budget deficits, as well as liquidity, do have a significant impact on inflation rates in the Islamic Republic of Iran.

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  • Abbas Alavirad & Sanhita Athawale, 2005. "The impact of the budget deficit on inflation in the Islamic Republic of Iran," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 29(1), pages 37-49, March.
    • Handle: RePEc:bla:opecrv:v:29:y:2005:i:1:p:37-49
    DOI: 10.1111/j.0277-0180.2005.00142.x
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    1. Albert Makochekanwa, 2011. "Impact of Budget Deficit on Inflation in Zimbabwe," Economic Research Guardian, Mutascu Publishing, vol. 1(2), pages 49-59, December.
    2. Alireza Ghadertootoonchi & Maryam Fani & Masoume Bararzadeh, 2020. "The effect of energy subsidies on the sustainability of economy, society and environment: A case study of Iran," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2020(2), pages 93-129.
    3. Kia, Amir & Jafari, Mahboubeh, 2020. "Forward-looking agents and inflation in an oil-producing country: Evidence from Iran," Journal of Asian Economics, Elsevier, vol. 69(C).
    4. Kandil Magda & Mirzaie Ida A., 2017. "Iran’s Inflationary Experience: Demand Pressures, External Shocks, and Supply Constraints," Review of Middle East Economics and Finance, De Gruyter, vol. 13(2), pages 1-19, August.
    5. Bonato Leo, 2008. "Money and Inflation in the Islamic Republic of Iran," Review of Middle East Economics and Finance, De Gruyter, vol. 4(1), pages 41-58, January.
    6. S. Adnan & H.A.S. BUKHARI & Safdar Ullah KHAN, 2008. "Does Volatility In Government Borrowing Leads To Higher Inflation? Evidence From Pakistan," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(3(5)_Fall), pages 187-202.
    7. Mwankemwa, Lusajo P. & Luvanda, Eliab, 2021. "Fiscal Deficit and its Threshold Effects on Inflation in Tanzania," African Journal of Economic Review, African Journal of Economic Review, vol. 10(1), December.
    8. Kreiter, Zebulun & Paul, Tapas Kumar, 2010. "Deficit Financing and Inflation in Bangladesh: A Vector Autoregressive Analysis," MPRA Paper 45981, University Library of Munich, Germany.
    9. Dizaji, S.F., 2011. "Analysis of domestic price and inflation determinants in Iran (as a developing oil-export based economy)," ISS Working Papers - General Series 530, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    10. Hemantha K.J. Ekanayake, 2012. "The Link Between Fiscal Deficit and Inflation: Do public sector wages matter?," ASARC Working Papers 2012-14, The Australian National University, Australia South Asia Research Centre.
    11. Nawaz, Muhammad & Iqbal, Muhammad Mazhar & Ali, Amanat & Zaman, Khalid, 2012. "Fiscal Theory of Price Level: A Panel Data Analysis for selected Saarc Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 152-170, September.
    12. International Monetary Fund, 2013. "Algeria: Selected Issues Paper," IMF Staff Country Reports 2013/048, International Monetary Fund.

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