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Sources of Inflation in Iran: An application of the ARDL Approach

Author

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  • Mosayeb PAHLAVANI
  • Mohammad RAHIMI

Abstract

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. The empirical results show that in the long-run, the main determinants of inflation in Iran are liquidity, the exchange rate, the rate of expected inflation and the rate of imported inflation. All these variables had significant effects on the inflation rate in the short run. Moreover the destructive eight year war with Iraq had a positive effect on the inflation rate in the Iranian economy. Finally, the error correction term (-0.3995) is found to be negative and statistically significant suggesting a quick adjustment process.

Suggested Citation

  • Mosayeb PAHLAVANI & Mohammad RAHIMI, 2009. "Sources of Inflation in Iran: An application of the ARDL Approach," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 9(1).
    • Handle: RePEc:eaa:ijaeqs:v:9:y2009:i:1_4
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    References listed on IDEAS

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    Cited by:

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    2. Guiyan Ao & Qianqian Xu & Qiang Liu & Lichun Xiong & Fengting Wang & Weiguang Wu, 2021. "The Influence of Nontimber Forest Products Development on the Economic–Ecological Coordination—Evidence from Lin’an District, Zhejiang Province, China," Sustainability, MDPI, vol. 13(2), pages 1-20, January.
    3. Nyoni, Thabani, 2019. "Modeling and forecasting CPI in Iran: A univariate analysis," MPRA Paper 92454, University Library of Munich, Germany.
    4. Arvian Triantoro & Muhammad Zaheer Akhtar & Shiraz Khan & Khalid Zaman & Haroon ur Rashid Khan & Abdul Wahab Pathath & Muhamad Amar Mahmad & Kamil Sertoglu, 2023. "Riding the Waves of Fluctuating Oil Prices: Decoding the Impact on Economic Growth," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 34-50, March.
    5. Basakha, Mehdi & Hossein Mohaqeqi Kamal, Seyed, 2019. "Industrial development and social welfare: A case study of Iran," Socio-Economic Planning Sciences, Elsevier, vol. 68(C).
    6. Khan, Qasim Raza & Xinshu, Mao & Qamri, Ghulam Muhammad & Nawaz, Ahmad, 2023. "From COVID to conflict: Understanding the deriving forces of environment and implications for natural resources," Resources Policy, Elsevier, vol. 83(C).

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    More about this item

    Keywords

    Inflation; Liquidity; ARDL approach; Iran’s economy;
    All these keywords.

    JEL classification:

    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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