The Political Economy of Growth-Inflation Transmission: The Case of Iran
After detrending Iran’s growth rates into stochastic and deterministic components and by decomposing nominal shocks into inflation and real output growth, 80% of the demand side shocks are found to be absorbed by price increases. This finding would cast doubt on the compatibility between inflation and growth targets outlined in the third five-year economic plan of the country. The simulation results here suggest that if the plan were constrained to a 6% real growth target, Iran’s chronic double-digit inflation rate would further accelerate. Hence, expansionary policies aiming at achieving the plan’s targets would move the economy along a near-vertical line Phillips curve.
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Volume (Year): 2 (2004)
Issue (Month): 2 (August)
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