An Analysis of Money Demand and Inflation in the Islamic Republic of Iran

22 Pages Posted: 14 Feb 2006

See all articles by Oya Celasun

Oya Celasun

International Monetary Fund (IMF) - Research Department

Mangal Goswami

International Monetary Fund (IMF)

Date Written: December 2002

Abstract

This study examines money demand and inflation dynamics in the Islamic Republic of Iran using quarterly data for the period 1990/91-2001/02 and tests whether the disinflation during 2000/01-2001/02 represents a structural break in the data. A long-run money market equilibrium condition is identified and the short-run behavior of the inflation, measured in terms of non-administered component of the consumer price index (CPI) is modeled conditional on the disequilibria in the money market. Estimation results indicate that the stabilization of the exchange rate on account of strong oil revenues during 2000/01-2001/02 buoyed the demand for domestic money and contributed to the decline in inflation. Tests of model stability do not point to a structural shift in the inflation equation during the period of analysis.

Keywords: Iran, Inflation, Money Demand, Exchange Rate

JEL Classification: C51, E31, E41

Suggested Citation

Celasun, Oya and Goswami, Mangal, An Analysis of Money Demand and Inflation in the Islamic Republic of Iran (December 2002). IMF Working Paper, Vol. , pp. 1-22, 2002. Available at SSRN: https://ssrn.com/abstract=880856

Oya Celasun (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Mangal Goswami

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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