Effectiveness of Stimulating Nominal Demand Policies in Economy of Iran (The Short-run slope of the Phillips Curve in Iran)

The main purpose of this study is to provide an estimate of the short-run slope of the Phillips curve in Iran. The subject is important, first, because, it reveals the relation between the real and the nominal sectors of the economy, and second, because, it has crucial policy implications. We especially investigate whether this relationship has been changed during the last five decades following the changes in economic and structure environment. Our findings indicate a strong relationship between the real output and the nominal demand before 1972. This connection, however, starts weakening after 1973, and almost diminishes after 1992. Moreover, our observations reveal that the main element in the decline of the trade-off parameter, in the beginning of the 70’s, was imperfect information, whereas the mechanism of the price stickiness used to play an influential role in the sharp decrease of the Phillips curve slope in the early 90’s.