The Political Economy of Growth-Inflation Transmission: The Case of Iran

Khashadourian Edmund and Grammy Abbas P
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Khashadourian Edmund: University of Phoenix
Grammy Abbas P: Department of Economics, California State University

Review of Middle East Economics and Finance, 2004, vol. 2, issue 2, 22-34

Abstract: After detrending Iran's growth rates into stochastic and deterministic components and by decomposing nominal shocks into inflation and real output growth, 80% of the demand side shocks are found to be absorbed by price increases. This finding would cast doubt on the compatibility between inflation and growth targets outlined in the third five-year economic plan of the country. The simulation results here suggest that if the plan were constrained to a 6% real growth target, Iran's chronic double-digit inflation rate would further accelerate. Hence, expansionary policies aiming at achieving the plan's targets would move the economy along a near-vertical line Phillips curve.

Keywords: inflation; real output growth; stagflation; structural shift; trend analysis; plan targets (search for similar items in EconPapers)
Date: 2004
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DOI: 10.2202/1475-3693.1023

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