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An Analysis of Money Demand and Inflation in the Islamic Republic of Iran

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  • Mangal Goswami
  • Oya Celasun
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    Abstract

    This study examines money demand and inflation dynamics in the Islamic Republic of Iran using quarterly data for the period 1990/91-2001/02 and tests whether the disinflation during 2000/01-2001/02 represents a structural break in the data. A long-run money market equilibrium condition is identified and the short-run behavior of the inflation, measured in terms of non-administered component of the consumer price index (CPI) is modeled conditional on the disequilibria in the money market. Estimation results indicate that the stabilization of the exchange rate on account of strong oil revenues during 2000/01-2001/02 buoyed the demand for domestic money and contributed to the decline in inflation. Tests of model stability do not point to a structural shift in the inflation equation during the period of analysis.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/205.

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    Length: 21
    Date of creation: 01 Dec 2002
    Date of revision:
    Handle: RePEc:imf:imfwpa:02/205

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    Related research

    Keywords: Iran; inflation; money market; money supply; money demand; inflation rate; inflation dynamics; foreign exchange; real money; monetary balances; money stock; inflation equation; monetary fund; rate of inflation; foreign currency; change in inflation; inflationary expectations; price level; real money supply; monetary phenomenon; aggregate demand; inflationary impact; real output; monetary expansion; relative price; effect of inflation; high inflation; monetary growth; low inflation; real value; rates of inflation; price inflation; macroeconomic stability; inflationary consequences; monetary policies; real rates; relative prices; money growth; inflationary pressures; demand for money; inflation money; nominal interest rates; macroeconomic analysis;

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    1. MacKinnon, James G, 1994. "Approximate Asymptotic Distribution Functions for Unit-Root and Cointegration Tests," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 12(2), pages 167-76, April.
    2. Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 8633, Universite de Montreal, Departement de sciences economiques.
    3. O. Liu & Olumuyiwa Adedeji, 2000. "Determinants of Inflation in the Islamic Republic of Iran," IMF Working Papers 00/127, International Monetary Fund.
    4. Pantula, Sastry G & Gonzalez-Farias, Graciela & Fuller, Wayne A, 1994. "A Comparison of Unit-Root Test Criteria," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 12(4), pages 449-59, October.
    5. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
    6. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 1057-72, June.
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    Cited by:
    1. Franziska Ohnsorge & Nienke Oomes, 2005. "Money Demand and Inflation in Dollarized Economies," IMF Working Papers 05/144, International Monetary Fund.
    2. Esfahani, H.S. & Mohaddes, K. & Pesaran, M.H., 2009. "Oil Exports and the Iranian Economy," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0944, Faculty of Economics, University of Cambridge.
    3. Gabriel Di Bella & David Hauner, 2005. "How Useful is Monetary Econometrics in Low-Income Countries? T+L3104he Case of Money Demand and the Multipliers in Rwanda," IMF Working Papers 05/178, International Monetary Fund.
    4. Selim Elekdag & Nabil Ben Ltaifa & Todd Schneider & Saade Chami, 2007. "Can a Rule-Based Monetary Policy Framework Work in a Developing Country? the Case of Yemen," IMF Working Papers 07/6, International Monetary Fund.
    5. Dizaji, S.F., 2011. "Analysis of domestic price and inflation determinants in Iran (as a developing oil-export based economy)," ISS Working Papers - General Series, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague 530, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    6. Amin Yousefi-Sahzabi & Kyuro Sasaki & Hossein Yousefi & Yuichi Sugai, 2011. "CO 2 emission and economic growth of Iran," Mitigation and Adaptation Strategies for Global Change, Springer, Springer, vol. 16(1), pages 63-82, January.
    7. Magda Kandil & Hanan Morsy, 2011. "Determinants Of Inflation In Gcc," Middle East Development Journal (MEDJ), World Scientific Publishing Co. Pte. Ltd., World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 141-158.
    8. Oomes, Nienke & Ohnsorge, Franziska, 2005. "Money demand and inflation in dollarized economies: The case of Russia," Journal of Comparative Economics, Elsevier, vol. 33(3), pages 462-483, September.
    9. Leo Bonato, 2007. "Money and Inflation in the Islamic Republic of Iran," IMF Working Papers 07/119, International Monetary Fund.
    10. Koffie Ben Nassar, 2005. "Money Demand and Inflation in Madagascar," IMF Working Papers 05/236, International Monetary Fund.

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