Non-Linear Inflationary Dynamics based on the Concept of Missing Money in Iran

Elham Sehati (), Yeganeh Mousavi Jahromi (), Mohsen Mehrara () and Abbas Najafizadeh ()
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Elham Sehati : Department of Economics and Banking, Arak Branch, Islamic Azad University
Yeganeh Mousavi Jahromi : Department of Economics, Payam-e Noor University,
Mohsen Mehrara : University of Tehran
Abbas Najafizadeh : Department of Economics and Banking, Arak Branch, Islamic Azad University

Journal of Money and Economy, 2018, vol. 13, issue 2, 221-243

Abstract: In this research, non-linear inflationary dynamics based on the concept of missing money is studied using the threshold autoregressive models based on seasonal data of the time interval (1990:04-2016:07) for the economy of Iran. The finding of the research shows that simple and Divisia liquidity growth variables are determined as threshold variables, and inflation reacts to changes in the growth of money through a three-regime process. The variables of simple liquidity growth, Divisia liquidity growth with a time lag and inflation expectations are the most critical factors influencing inflation. In both clarifications, GDP has anti-inflationary effects. In both models, the exchange rate has a stronger and positive impact on inflation than other policies under expansionary monetary policy conditions. The simple liquidity growth variable in the low monetary growth policy, due to the stimulation of economic activities shows anti-inflationary effects, and in the medium-term monetary growth, the policy explains the expected inflationary effects. Lagged Divisia liquidity growth in these policies always shows visible inflationary effects. It seems that the use of Divisia liquidity variable instead of a simple liquidity variable explains the non-linear behavior of inflation in a more satisfactory way.

Keywords: Inflation; Non-Linear Dynamic; Simple and Divisia Monetary Aggregates; Threshold Autoregressive Models. (search for similar items in EconPapers)
JEL-codes: E31 E51 E52 (search for similar items in EconPapers)
Date: 2018
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