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An Investigation into the Impacts of Internal and External Shocks on Inflation in Iran
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Farhad Ghafari *   , Hamed Naemy Pajoh |
| Islamic Azad University , farhad.ghaffari@yahoo.com |
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Abstract: (8777 Views) |
| This article investigates the impacts of internal and external shocks on inflation in Iran by using Vector Auto regression (VAR) model. The data have been captured during (1973-2007).The results of VAR model indicate a negative relationship between inflation and increase of output, on the one hand, and positive relationship between inflation and other variables (foreign currency growth rate, liquidity increase and growth in CPI and imported services prices), on the other hand. The results of VAR model also show that the negative impact of output on inflation in second lag exceeds the positive impact of money supply on inflation in second lag. The Impulse –responses functions (IRF) approve the above, too. Besides, the variance decomposition indicates that in the short run, the contribution of exchange rate on inflation is more than other variables, while in the long run, growth of output and increase in liquidity make the biggest contribution in the explanation of inflation. In sum, output and liquidity have persistent impact on inflation in Iran. |
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| Keywords: Inflation, Vector Auto Regression, Iran |
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Full-Text [PDF 834 kb]
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Type of Study: Research |
Subject:
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