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Budget Deficits, Monetary Base, and Inflation: The Case of IRAN (in Persian)

Author

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  • Tavassoli, solaleh

    (Department of Economic, Monetary and Banking Research Institute, Tehran, Iran)

Abstract

In recent years, the country has experienced large budget deficits and increasing inflation rates. Imbalances in both the budget and banking sectors have been major factors contributing to this inflation. This study investigates the relationships between key monetary variables, government budget deficits, gross domestic product (GDP), real exchange rates, and oil revenues from 1991 to 2022, using a dynamic vector error correction model. The findings show that government budget deficits have a significant long-run positive effect on the monetary base, which in turn increases inflation. The analysis also finds a one-way relationship where the monetary base and operating balance deficit lead to higher inflation rates. It suggests that the operating balance deficit may also affect changes in the monetary base. Overall, the results indicate that monetary dynamics in the country are closely related to government budget deficits, emphasizing the important roles of both monetary and fiscal factors in driving inflation.

Suggested Citation

  • Tavassoli, solaleh, 2024. "Budget Deficits, Monetary Base, and Inflation: The Case of IRAN (in Persian)," The Journal of Planning and Budgeting (٠صلنامه برنامه ریزی Ùˆ بودجه), Institute for Management and Planning studies, vol. 29(3), pages 3-44, November.
    • Handle: RePEc:auv:jipbud:v:29:y:2024:i:3:p:3-44
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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