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Inflation and Money supply growth in Iran: Empirical Evidences from Cointegration and Causality

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  • Sedigheh Atrkar Roshan

    (Department of Economics, University of Alzahra, Tehran, Iran)

Abstract

Inflation 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.

Suggested Citation

  • Sedigheh Atrkar Roshan, 2014. "Inflation and Money supply growth in Iran: Empirical Evidences from Cointegration and Causality," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 18(1), pages 131-152, Winter.
    • Handle: RePEc:eut:journl:v:18:y:2014:i:1:p:131
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    References listed on IDEAS

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    Cited by:

    1. Eltejaei , Ebrahim & Montazeri Shoorekchali , Jalal, 2021. "Investigating the Relationship between Money Growth and Inflation in Turkey: A Nonlinear Causality Approach," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 16(3), pages 305-322, September.
    2. Mehmet Mucuk & Sümeyra Evren, 2023. "What Drives Inflation in High-inflation Countries? Evidence from Haiti, Sudan, Türkiye and Zambia," Politická ekonomie, Prague University of Economics and Business, vol. 2023(3), pages 238-266.
    3. Mehmet Mucuk & Sümeyra Evren, . "What Drives Inflation in High-inflation Countries? Evidence from Haiti, Sudan, Turkey and Zambia," Politická ekonomie, Prague University of Economics and Business, vol. 0.

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