Money and Inflation in the Islamic Republic of Iran

IMF Working Papers, May 1, 2007

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Money and Inflation in the Islamic Republic of Iran

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Bibliographic details

• Authors: Leo Bonato
• Published: May 1, 2007
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451866834.001

Summary and main findings

• Paper examines the determinants of inflation in Iran, focusing on the relationship between nominal variables and inflation rather than traditional estimates of the demand function for real money balances.
• Model estimates are used to address the decline in inflation that occurred up to the first half of 2006, assessing:
  • the structural stability of the estimated relationships, and
  • the ability of the model to predict inflation at the end of the sample.
• The estimates confirm the strong relationship between money and inflation when M1 is used, with no evidence of a structural change.

Methodological focus

• Departures from the traditional real money balances demand-function approach: emphasis on nominal variables and their relationship to inflation.
• Empirical evaluation includes tests of structural stability and out-of-sample predictive performance for inflation through the end of the sample period (including the period up to the first half of 2006).

Policy-relevant themes and topics

• Demand for money
• Exchange rates
• Inflation
• Inflation targeting
• Nominal effective exchange rate

Keywords and technical terms

• inflation equation
• price level
• rate of return
• WP

Content in this bundle

• Money Growth and Inflation, 1958/59–2005/06
  • Money Growth and Inflation, 1958/59–2005/06 (Markdown version)
  • Money Growth and Inflation, 1958/59–2005/06 (PDF)