Inflation in Iran: an empirical assessment of the key determinants
ISSN: 0144-3585
Article publication date: 16 March 2023
Issue publication date: 22 November 2023
Abstract
Purpose
To study the key determinants of chronically high inflation in Iran.
Design/methodology/approach
Relying on annual data from 1978 to 2019, the authors employ an Auto-Regressive Distributed Lag (ARDL) model and Error Correction Model (ECM) to study the inflationary effects of monetary and fiscal policies as well as exchange rate swings and sanctions intensification.
Findings
The authors find that increase in money supply, depreciation of nominal exchange rate, increase in fiscal deficit and intensification of sanctions are among the key drivers of inflation in Iran. Their impact is profound in the long run, but in the short run only money supply and currency depreciation are significant. Also, when exploring the inflation in different components of Consumer Price Index (CPI), we find robust long- and short-run effects from money supply and exchange rate, while the effects of fiscal deficit and sanctions vary across different components.
Originality/value
The authors contribute to the literature by setting apart the long-vs short-run effects of key variables on inflation in Iran. The authors also employ improved measures of fiscal deficit and sanctions that are shown to be of significance in the long run. Lastly, the authors go beyond the aggregate index and examine the variations in different CPI components.
Keywords
Acknowledgements
The authors thank the session participants at the Southern Economic Association Meeting (2021) for the helpful comments and suggestions. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Monetary and Banking Research Institute or the Central Bank of Iran.
Citation
Hemmati, M., Tabrizy, S.S. and Tarverdi, Y. (2023), "Inflation in Iran: an empirical assessment of the key determinants", Journal of Economic Studies, Vol. 50 No. 8, pp. 1710-1729. https://doi.org/10.1108/JES-07-2022-0370
Publisher
:Emerald Publishing Limited
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