 Determinants of Inflation in the Islamic Republic of Iran: A Macroeconomic AnalysisO. Liu and Olumuyiwa Adedeji No 2000/127, IMF Working Papers from International Monetary Fund Abstract: This study establishes a framework for analyzing the major determinants of inflation in the Islamic Republic of Iran. An empirical model was estimated by taking into consideration disequilibria in the markets for money, foreign exchange, and goods. Results strongly support the need for a sustained prudent monetary policy in order to reduce inflation and stabilize the foreign exchange market. The estimation shows that an excess money supply generates an increase in the rate of inflation that, in turn, intensifies asset substitution (from money to foreign exchange), thereby weakening real demand for money and exerting pressures on the foreign exchange market. The study also found that a permanent rise in real income tends to increase the real demand for money and reduces inflation in the long run. Keywords: WP; rate of inflation; money supply; market; market exchange rate; Iran; money demand; exchange rate; output gap; inflation and cointegration; TSE exchange market; equilibrium exchange rate; money growth; exchange rate elasticity; goods market; market-clearing price; Exchange rates; Multiple currency practices; Inflation; Demand for money; Global (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2000/127 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC. |
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