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Thresholds Effect of Money Growth on Inflation in Iran

Listed author(s):
  • Mohammad Mirbagherijam

This paper surveys the effects of money growth and economic growth on inflation in Iran. We use Threshold Vector Error Correction Model (TVECM) for two sets of bivariate series inflationmoney growth and inflation-economic growth separately and estimate the parameters of TVECMs by quantitative econometric software R 3.1.0. The estimation results based on the sample of data 1990:Q1 to 2013:Q4 show the long-run equation with threshold value 0.028 for bivariate series inflation-money growth. In the short-run, money growth has no effect on the inflation rate if economy switches to the low-inflation regime (the quarterly inflation rate being less than 2.8 percent) but it has significant positive impact on inflation at high-inflation regime Estimated threshold value for bivariate series inflationeconomic growth is 0.073 and the high inflation rate above this threshold value, in contrast to low inflation rate, has positive effects on economic growth in the short-run. The obtained results support the view that inflation rate dynamics may be different when economy switch to the different inflation regime.

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Article provided by Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences in its journal International Journal of Academic Research in Business and Social Sciences.

Volume (Year): 4 (2014)
Issue (Month): 9 (September)
Pages: 319-329

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Handle: RePEc:hur:ijarbs:v:4:y:2014:i:9:p:319-329
Contact details of provider: Web page: http://hrmars.com/index.php/pages/detail/IJARBSS

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  1. Potter, Simon M, 1995. "A Nonlinear Approach to US GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 109-125, April-Jun.
  2. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
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  4. Seo, Myunghwan, 2006. "Bootstrap testing for the null of no cointegration in a threshold vector error correction model," Journal of Econometrics, Elsevier, vol. 134(1), pages 129-150, September.
  5. Strikholm, Birgit & Teräsvirta, Timo, 2005. "Determining the Number of Regimes in a Threshold Autoregressive Model Using Smooth Transition Autoregressions," SSE/EFI Working Paper Series in Economics and Finance 578, Stockholm School of Economics, revised 11 Feb 2005.
  6. Mohammad Mirbagherijam, 2014. "Survey the Dynamic of Inflation in Iran Since 1990," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(6), pages 210-224, June.
  7. Kazeem Bello Ajide & Olukemi Lawanson, 2012. "Inflation Thresholds and Economic Growth: Evidence from Nigeria," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(7), pages 876-901, November.
  8. Saumitra, Bhaduri & Raja, Sethudurai, 2012. "A note on excess money growth and inflation dynamics: evidence from threshold regression," MPRA Paper 38036, University Library of Munich, Germany.
  9. David, Drukker & Pedro, Gomis-Porqueras & Paula, Hernandez -erme, 2005. "Threshold effects in the relationship between inflation and growth: a new panel-data approach," MPRA Paper 38225, University Library of Munich, Germany.
  10. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
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