Study and Analysis of Non-linear Relationship between Production and Inflation in Iran

Studying inflationary conditions in the Iranian economy has been always a preoccupation for many economic experts. The relationship between inflation and liquidity is among the most important issues discussed in the area of macroeconomics. However, due to new conditions of the Iranian economy and the impacts of the subsidy reform plan that relationship has totally changed in recent years, making study of inflationary impulses in the Iranian economy imperative. The present paper intends to address this issue with due attention to the supply side of the economy through an approach to production gap analysis. This issue has been a major concern for economic policymakers as the Iranian year 1391 (2012-2013) has been designated the year for supporting national production.This study uses various econometric techniques to project inflation in the above period. Findings indicate that the general condition of commodity prices in Iran will deteriorate in the current year.