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Non-Linear Inflationary Dynamics based on the Concept of Missing Money in Iran

Author

Listed:
  • Sehati , Elham

    (Department of Economics and Banking, Arak Branch, Islamic Azad University)

  • Mousavi Jahromi , Yeganeh

    (Department of Economics, Payam-e Noor University,)

  • Mehrara , Mohsen

    (University of Tehran)

  • Najafizadeh , Abbas

    (Department of Economics and Banking, Arak Branch, Islamic Azad University)

Abstract

In this research, non-linear inflationary dynamics based on the concept of missing money is studied using the threshold autoregressive models based on seasonal data of the time interval (1990:04-2016:07) for the economy of Iran. The finding of the research shows that simple and Divisia liquidity growth variables are determined as threshold variables, and inflation reacts to changes in the growth of money through a three-regime process. The variables of simple liquidity growth, Divisia liquidity growth with a time lag and inflation expectations are the most critical factors influencing inflation. In both clarifications, GDP has anti-inflationary effects. In both models, the exchange rate has a stronger and positive impact on inflation than other policies under expansionary monetary policy conditions. The simple liquidity growth variable in the low monetary growth policy, due to the stimulation of economic activities shows anti-inflationary effects, and in the medium-term monetary growth, the policy explains the expected inflationary effects. Lagged Divisia liquidity growth in these policies always shows visible inflationary effects. It seems that the use of Divisia liquidity variable instead of a simple liquidity variable explains the non-linear behavior of inflation in a more satisfactory way.

Suggested Citation

  • Sehati , Elham & Mousavi Jahromi , Yeganeh & Mehrara , Mohsen & Najafizadeh , Abbas, 2018. "Non-Linear Inflationary Dynamics based on the Concept of Missing Money in Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 13(2), pages 221-243, April.
    • Handle: RePEc:mbr:jmonec:v:13:y:2018:i:2:p:221-243
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    References listed on IDEAS

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    More about this item

    Keywords

    Inflation; Non-Linear Dynamic; Simple and Divisia Monetary Aggregates; Threshold Autoregressive Models.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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