The Persistence of Inflation in Iran: A Fractionally Integrated Approach

The aim of this paper is to analyzing the persistency of inflation in Iran by using a general approach, with the goal of providing a plausible and acceptable explanation. For this, the inflation rate of Iran in period 1937-2016 and on the base of fractionally integrated (FI) approach was modeled and in the later phase inflation memory parameter has been estimated by using classic methods (the Geweke and Porter-Hudak semi parametric method nonlinear least squares, exact maximum likelihood, and a minimum distance estimator) and Bayesian methods. The results of the estimation in both methods show that the inflation rate in Iran is stable. Stability of inflation rates has important implications for policy-making, especially monetary policy, so that due to the impact of economic shocks on inflation, its effects will be last for a long time. Therefore, it is necessary to policy makers identify the major sources of distorting inflation, including dependence on oil resources, no attention to the role and function of the reserve fund, the government budget deficit, central bank dependence and the existence of structural problems and consider appropriate approaches in this field.