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Determinants of Inflation in the Islamic Republic of Iran


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  • O. Liu
  • Olumuyiwa Adedeji
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    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.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/127.

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    Length: 28
    Date of creation: 01 Jul 2000
    Date of revision:
    Handle: RePEc:imf:imfwpa:00/127

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    Keywords: Exchange rates; exchange rate; foreign exchange; inflation; market exchange rate; rate of inflation; money supply; real output; money growth; equilibrium exchange rate; monetary policy; price level; gdp deflator; foreign exchange market; real money; real exchange rate; real rates; average exchange rate; currency substitution; exchange rate depreciation; real interest rates; exchange control; inflation dynamics; money stock; nominal exchange rate; high inflation; terms of trade; chronic inflation; exchange restrictions; multiple aggregate demand; exchange rate movements; black market; foreign exchange markets; exchange rate dynamics; exchange controls; foreign exchange transactions; economic instability; inflationary pressures; monetary aggregate; inflation targeting framework; exchange rate misalignment; exchange rate premium; inflation targeting; exchange markets; foreign exchange earnings; black market exchange rate; terms of trade shock; exchange transactions; exchange rate movement; macroeconomic analysis; exchange rate unification; exchange earnings; foreign exchange operations; monetary phenomenon; higher rate of inflation; exchange operations; forecasting inflation; exchange rate regime;


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    Cited by:
    1. Mangal Goswami & Oya Celasun, 2002. "An Analysis of Money Demand and Inflation in the Islamic Republic of Iran," IMF Working Papers 02/205, International Monetary Fund.
    2. Marek Dabrowski & Wojciech Paczynski & Lukasz Rawdanowicz, 2002. "Inflation and Monetary Policy in Russia: Transition Experience and Future Recommendations," CASE Network Studies and Analyses 0241, CASE-Center for Social and Economic Research.
    3. Hasanov, Fakhri, 2009. "Analyzing price level in a booming economy: the case of Azerbaijan," MPRA Paper 29555, University Library of Munich, Germany.
    4. Magda E. Kandil & Hanan Morsy, 2009. "Determinants of Inflation in GCC," IMF Working Papers 09/82, International Monetary Fund.
    5. Pelipas, Igor, 2006. "Money demand and inflation in Belarus: Evidence from cointegrated VAR," Research in International Business and Finance, Elsevier, vol. 20(2), pages 200-214, June.
    6. Jalil, Abdul & Tariq, Rabbia & Bibi, Nazia, 2014. "Fiscal deficit and inflation: New evidences from Pakistan using a bounds testing approach," Economic Modelling, Elsevier, vol. 37(C), pages 120-126.


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