Inflation Dynamics in Iran and Its Asymmetric Response to Policy Shocks: A NARDL Approach

Hesamoddin Kordtabar Firouzjaei, Saeed Shavvalpour and Reza Mohseni
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Hesamoddin Kordtabar Firouzjaei: Master of Science (M.Sc.) in Economic Development and Planning, Researcher, Center for Development Research and Foresight, Tehran, Iran
Saeed Shavvalpour: Associate professor, The school of management, Economics and progress engineering, Iran university of science and technology, Tehran, Iran
Reza Mohseni: Assistant professor, The Faculty of Economics and Political science, Shahid Beheshti university, Tehran, Iran

Quarterly Journal of Applied Theories of Economics, 2026, vol. 13, issue 2, 105-140

Abstract: This study investigates the responsiveness of the inflation rate in the Iranian economy to policy-related variables, including the monetary base, the budget deficit, the exchange rate, and the balance of payments. It also examines the asymmetric response of inflation to positive and negative shocks in these variables, in both the short and long run. Data covering the period 2001–2023 are collected and used in the analysis. The relationships among the variables are examined using the Nonlinear Autoregressive Distributed Lag (NARDL) model, which allows for the investigation of asymmetric effects within a dynamic framework. The results indicate that the monetary base, budget deficit, exchange rate, and balance of payments play a significant role in explaining inflation's variations and fluctuations. Furthermore, it is found that inflation responds asymmetrically to positive and negative shocks in these variables, producing different effects in the short and long run. Based on the findings, monetary, fiscal, exchange rate, and trade policies in the Iranian economy should be designed and implemented with asymmetric and heterogeneous effects on inflation in mind. Ignoring this asymmetry may lead to inefficiencies in policy effectiveness and in controlling inflation

Keywords: Inflation; Monetary Policy; Fiscal Policy; Exchange Rate; Balance of Payments; Nonlinear Autoregressive Distributed Lag (NARDL) Model (search for similar items in EconPapers)
JEL-codes: C22 E31 E52 F31 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ris:qjatoe:023075

DOI: 10.22034/ecoj.2025.68892.3452

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