Investigating the Dynamic Relationship of Global Economic Policy Uncertainty with Inflation and Inflation Uncertainty in Iran

Examining the dynamics of inflation and its uncertainty, as well as the relationship between inflation and measures of economic conditions are of vital importance for the analysis of economic policies. In the process of globalization and increasing relations between countries, the role of global variables is raised as a factor affecting inflation. In this study, the relationship between global economic policy uncertainty with inflation and inflation uncertainty in Iran has been investigated using monthly data during the April 1997 to September 2022. The correlation of the mentioned variables has been investigated using the dynamic conditional correlation GARCH model (DCC-GARCH). According to the research results, fluctuations in global economic policy have a significant relationship with inflation and inflation volatility. Dynamic conditional correlation of global uncertainty with inflation and inflation uncertainty is positive in some periods and negative in other periods. Numerous reasons such as aggregate demand channel, aggregate supply channel, price stickiness, and central bank policies' response to inflation can explain the different correlation behavior over time. Regarding the fact that global economic policy uncertainty can affect inflation and inflation targeting policies in Iran, and policymakers should pay attention to the structure of correlation between inflation and domestic and global macroeconomic.