The impact of the budget deficit on inflation in the Islamic Republic of Iran

Abbas Alavirad and Sanhita Athawale

OPEC Energy Review, 2005, vol. 29, issue 1, 37-49

Abstract: In this paper, we measure and analyse the impact of budget deficit on inflation in the Islamic Republic of Iran. After briefly reviewing the theoretical background, we use univariate cointegration tests, such as the autoregressive distributed lag model (ARDL) and Phillips‐Hansen methods, to study the relationship between the two in the long term. Additionally, we use the error correction model to study the behaviour of the model in the short run. Our analysis is based on time series annual data from 1963 to 1999 and our results show that budget deficits, as well as liquidity, do have a significant impact on inflation rates in the Islamic Republic of Iran.

Date: 2005
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