The External Determinants of Inflation: The Case of Iran

Abdolnaser Hemmati (), Leili Niakan () and Vida Varahrami ()
Additional contact information
Abdolnaser Hemmati: Faculty of Economics, University of Tehran, Tehran, Iran.
Leili Niakan: Insurance Research Center, Tehran, Iran.
Vida Varahrami: Faculty of Economics, Shahid Beheshti University, Tehran, Iran.

Iranian Economic Review (IER), 2018, vol. 22, issue 3, 745-756

Abstract: The study of determining the factors affecting inflation or consumer price index has been conducted by many macroeconomic economists nationally as well as internationally. In this paper, we assess the external determinants of inflation dynamics in Iran. For this purpose, we use an OLS single equation model and a vector error correction model (VECM). Results of the analysis reveal that money supply, exchange rate, import price index and intensification of sanctions are contributed in raising general price index in the long run. Long-run elasticity of inflation with respect to money supply, exchange rate, effective tariff and import price index are 0.25, 0.118, 0.087 and 0.71. Moreover, in every year that the severity of sanctions has increased, inflation increases with amount of 0.084 (or 8.4%).Results of OLS single equation model show that only 21% of the domestic inflation variance in short run is explained by the independent variables. Iran's inflation is driven mostly by exchange rate (with one season lag) and effective tariff (with two seasons lag). In the short run, the coefficient of error correction term is -0.13 suggesting 13 percent annual adjustment towards long run equilibrium. General Price index of last year and unit price of imported goods of two years before are found to be positively related with general price index.

Keywords: Inflation; External Determinants; Exchange Rate; Effective Tariff. (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
ftp://80.66.179.253/eut/journl/20183-7.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eut:journl:v:22:y:2018:i:3:p:745

Access Statistics for this article

Iranian Economic Review (IER) is currently edited by Dr.Hossien Abbasinejad

More articles in Iranian Economic Review (IER) from Faculty of Economics,University of Tehran.Tehran,Iran Contact information at EDIRC.
Bibliographic data for series maintained by [z.rahimalipour] ().