Interest Rate Estimation and Its Relationship with Inflation in Iran: Futures Market Data And MS-VAR Approach

This paper has addressed two issues in Iran's economy. First, considering that the market interest rate is hidden in Iran, the first goal of this paper is to provide a calculate of the interest rate in financial markets of Iran. To derive a calculable alternative for this rate, the relationship between the spot and future prices of the gold coin certificate of deposit was used, and the monthly rates was extracted during 2009:04-2018-04. The second issue is the relationship between interest rate and inflation. Considering different views in the literature and, assuming that these views are mainly derived from the empirical studies on economies with different conditions and that this relationship may have a non-linear form, this article provides a model of MS-VAR to investigate the non-linear causal relationship between interest rate and inflation. The findings show that this relationship during the studied era is classified in two regimes. In the zero regime, when both variables are at high and fluctuating levels, there is a two-way causality between them, which confirms the Fisher’s effect. In regime one, where both variables are at relatively low levels with little fluctuation, there has been a positive one-way causality from interest rate to inflation.