Determinants of Inflation in the Islamic Republic of Iran: A Macroeconomic Analysis

July 1, 2000

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Format: Chicago

O. Liu, and Olumuyiwa S Adedeji. Determinants of Inflation in the Islamic Republic of Iran: A Macroeconomic Analysis, (USA: International Monetary Fund, 2000) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Demand for money, Exchange rates, Foreign exchange, Inflation, Money, Multiple currency practices, Prices

Keywords: Demand for money, Equilibrium exchange rate, Exchange rate, Exchange rate elasticity, Exchange rates, Global, Goods market, Inflation, Inflation and cointegration, Iran, Market, Market exchange rate, Market-clearing price, Money demand, Money growth, Money supply, Multiple currency practices, Output gap, Rate of inflation, TSE exchange market, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/127
Stock No:

WPIEA1272000
ISBN:

9781451854978
ISSN:

1018-5941

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