Analysis of domestic price and inflation determinants in Iran (as a developing oil-export based economy)
AbstractAbstractThe objective of this study is to examine and investigate both behaviour anddeterminants of domestic prices and inflation rate in Iran as a developing oilexport based economy. I apply two models; the first model is for investigatingthe main determinants of domestic prices while the second model considersthe main determinants of inflation rate. The period of study is from 1973 to2008. Some econometrics techniques such as unit root test, cointegration test,ECM model and causality test have been used. The first model is constructedaccording to the studies that mostly have tried to investigate the inflation inother developing and developed countries. The results indicate that foreignprices, GDP, exchange rate and the two dummy variables DT80 and DT88 (for capturing the structural break which have been caused respectively by thewar with Iraq and the subsequent reconstructions after war) have significantlyaffected the domestic prices in Iran. Furthermore, in the short run the maindeterminants of domestic prices have been foreign prices and DT88. Incontrast with Aljebrin (2006) who has considered this model for otherdeveloping oil export based economies our estimations of first modeldemonstrate some acceptable results about the factors that have affected thedomestic prices of Iran.In the second model I apply the model which has suggested byAljebrin(2006) to investigate the inflation in developing oil based economies.The results show that money growth, oil production growth, non-oil GDPgrowth and two dummy variables DT80 and DT88 have affected Iranianinflation in long run. Moreover in the short run the main determinants ofinflation have been non-oil GDP growth and DT88. Our results imply that therapid development of the non-oil sector and performing some useful policiesfor restructuring the economy such as diversifying the economy from the oilsector will strengthen the economy and reduce the importance of oilproduction as a source of inflation.
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Bibliographic InfoPaper provided by International Institute of Social Studies of Erasmus University (ISS), The Hague in its series ISS Working Papers - General Series with number 530.
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inflation; Iran; developing country; domestic prices; oil exports;
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