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Determinants of Inflation: A Case Study of Iran

Author

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  • Abbas Khandan
  • Seyyed Mahmood Hosseini

Abstract

The study of causes of inflation has probably given rise to one of the most significant macroeconomic debates in the field of economics. The debates differ in their hypotheses, mainly due to a range of conventional views about the appropriate measure to control inflation and also due to disparity between developed and developing countries. We all know that inflation is related with an excessive growth in money supply; a view originally belongs to monetarists. However, this theory does not explain changes in growth of money supply and its main factors. In this paper we tried to answer this question through a system of simultaneous equations incorporating several variables based on various theories of inflation. Iran was also selected as case of study which has suffered high inflation in the last forty years. Results confirm that money is the main cause, but we found that governmental budget deficit through an increase in money supply also indirectly affect inflation. To explain public deficits it seems that structural problems in generating revenue are to be condemned.

Suggested Citation

  • Abbas Khandan & Seyyed Mahmood Hosseini, 2016. "Determinants of Inflation: A Case Study of Iran," Applied Economics and Finance, Redfame publishing, vol. 3(4), pages 95-102, November.
    • Handle: RePEc:rfa:aefjnl:v:3:y:2016:i:4:p:95-102
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    References listed on IDEAS

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    1. Paul Beckerman, 1992. "The Economics of High Inflation," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-21713-7.
    2. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, March.
    3. Gordon, Robert J, 1977. "The Theory of Domestic Inflation," American Economic Review, American Economic Association, vol. 67(1), pages 128-134, February.
    4. Goodfriend, Marvin, 1997. "A framework for the analysis of moderate inflations," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 45-65, June.
    5. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
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    Cited by:

    1. Kandil Magda & Mirzaie Ida A., 2017. "Iran’s Inflationary Experience: Demand Pressures, External Shocks, and Supply Constraints," Review of Middle East Economics and Finance, De Gruyter, vol. 13(2), pages 1-19, August.

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    More about this item

    Keywords

    inflation; money supply; public deficits; structural problems; Iran;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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