Roots of Inflation in Iran (1959-2007)

The authors of the present paper try to study the affecting roots and factors on inflation, using the Autoregressive Distributed Lag Model, Granger-Wald Causality Tests, Impulse Response Function (IRF), and Variance Decomposition. The affecting variables dealt with in this paper are as follows: liquidity growth rate, imported inflation, labor productivity, wage rate, exchange rate in informal market in comparison with formal market, the production gap, budget deficit, bottlenecks in agriculture sector during 1959-2007. The results of this study show that the above-mentioned variables have a significant effect on inflation while the expected inflation rate and structural limitations are regarded as the paramount factor. The authors finally conclude that the current theories have support from some part of the findings, but none by itself can explain the inflation in Iran's economy.