The Role of Macroeconomic Variables in the Occurrence of Stagflation in Iran's Economy

This study aims at the role of macroeconomic variables in the occurrence of stagflation in Iran's economy. We have tried to examine the effects of such variables as budget deficit, oil price, oil revenue, money quantity, interest rate, labor productivity, wage rate, exchange rate, sanctions and liberalization of energy prices on Iran's stagflation during 1974-2015. The results indicate that money quantity, exchange rate, wage rate and sanctions have positive and significant effects and oil price, oil revenue, interest rate and labor productivity have negative and significant effects on stagflation. Based on the estimation results, the coefficients of all these variables were statistically significant except for budget deficit and liberalization of energy prices. Since both inflation and stagnation are undesirable, inhibiting one would mean the aggravation of the other, which can impose social and political costs. Due to the negative effect of labor productivity and the important role of supply policies in improving business environments and eliminating stagflation, it is better to pay more attention to these policies. Also, all the diplomatic capacities in the country should be used to reduce the sanctions pressure and find ways out of them considering the important role of foreign interactions and their psychological effects on stagflation.