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Determinants of Inflation in the Islamic Republic of Iran: A Macroeconomic Analysis

Author

Listed:
  • Mrs. O. Liu
  • Mr. Olumuyiwa S Adedeji

Abstract

This study establishes a framework for analyzing the major determinants of inflation in the Islamic Republic of Iran. An empirical model was estimated by taking into consideration disequilibria in the markets for money, foreign exchange, and goods. Results strongly support the need for a sustained prudent monetary policy in order to reduce inflation and stabilize the foreign exchange market. The estimation shows that an excess money supply generates an increase in the rate of inflation that, in turn, intensifies asset substitution (from money to foreign exchange), thereby weakening real demand for money and exerting pressures on the foreign exchange market. The study also found that a permanent rise in real income tends to increase the real demand for money and reduces inflation in the long run.

Suggested Citation

  • Mrs. O. Liu & Mr. Olumuyiwa S Adedeji, 2000. "Determinants of Inflation in the Islamic Republic of Iran: A Macroeconomic Analysis," IMF Working Papers 2000/127, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2000/127
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    Citations

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    Cited by:

    1. Esfahani, Hadi Salehi & Mohaddes, Kamiar & Pesaran, M. Hashem, 2013. "Oil exports and the Iranian economy," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(3), pages 221-237.
    2. Shahram Fattahi, 2012. "Economic Growth, Inflation and Wage Growth: Experience from a Developing Country," Business and Management Research, Business and Management Research, Sciedu Press, vol. 1(2), pages 88-93, June.
    3. Marek Dabrowski & Wojciech Paczynski & Lukasz Rawdanowicz, 2002. "Inflation and Monetary Policy in Russia: Transition Experience and Future Recommendations," CASE Network Studies and Analyses 0241, CASE-Center for Social and Economic Research.
    4. Somayeh Mardaneh, 2015. "Inflation Dynamics in a Dutch Disease Economy," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 19(3), pages 295-324, Autumn.
    5. I, Sahadudheen, 2012. "A cointegration and error correction approach to the determinants of inflation in India," MPRA Paper 65561, University Library of Munich, Germany, revised 2012.
    6. Dario Laudati & M. Hashem Pesaran, 2023. "Identifying the effects of sanctions on the Iranian economy using newspaper coverage," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(3), pages 271-294, April.
    7. Hasanov, Fakhri, 2009. "Analyzing price level in a booming economy: the case of Azerbaijan," MPRA Paper 29555, University Library of Munich, Germany.
    8. Magda Kandil & Hanan Morsy, 2011. "Determinants of Inflation in GCC," Middle East Development Journal, Taylor & Francis Journals, vol. 3(2), pages 141-158, January.
    9. Furrukh Bashir, Farzana Yousaf, Huda Aslam, 2016. "Determinants of Inflation in Pakistan: Demand and Supply Side Analysis," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 1(1), pages 1-15, March.
    10. Mohammad Mahabub Alam, 2018. "The Determinants of CPI Inflation in Bangladesh, 1980-2016," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 6(4), pages 441-461, December.
    11. Pelipas, Igor, 2006. "Money demand and inflation in Belarus: Evidence from cointegrated VAR," Research in International Business and Finance, Elsevier, vol. 20(2), pages 200-214, June.
    12. repec:gei:jnlfer:v:1:y:2016:i:1:p: is not listed on IDEAS
    13. Thouraya Boujelbene & Younes Boujelbene, 2010. "Long run determinants and short run dynamics of inflation in Tunisia," Applied Economics Letters, Taylor & Francis Journals, vol. 17(13), pages 1255-1263.
    14. Khashadourian Edmund & Grammy Abbas P, 2004. "The Political Economy of Growth-Inflation Transmission: The Case of Iran," Review of Middle East Economics and Finance, De Gruyter, vol. 2(2), pages 22-34, August.
    15. Hossein Bastanzad & Pedram Davoudi & Hossein Tavakolian, 2018. "Foreign Exchange Rate Pricing at the Future Contract (Case of I.R. of Iran)," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 22(1), pages 253-293, Winter.
    16. Mr. Mangal Goswami & Oya Celasun, 2002. "An Analysis of Money Demand and Inflation in the Islamic Republic of Iran," IMF Working Papers 2002/205, International Monetary Fund.
    17. Jalil, Abdul & Tariq, Rabbia & Bibi, Nazia, 2014. "Fiscal deficit and inflation: New evidences from Pakistan using a bounds testing approach," Economic Modelling, Elsevier, vol. 37(C), pages 120-126.
    18. Somayeh Mardaneh, 2012. "Inflation Dynamics in a Dutch Disease Economy," Discussion Papers in Economics 12/25, Division of Economics, School of Business, University of Leicester.
    19. Mohammadreza Mahmoudi, 2021. "Identifying the Main Factors of Iran's Economic Growth using Growth Accounting Framework," Papers 2109.02787, arXiv.org, revised Oct 2021.

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