The Measurement of Energy (Oil) Price Shock Effect on Inflation Rate in Iran

In this study,we have measured the effect of oil price shocks on inflation rate in short-run and long-run in 1970-2007 in Iran. In this way, first passing-through coefficient of oil price to inflation in short-run and long-run by estimating Phillips curve by seasonal data were measured and the stability of these coefficients by break structure test were investigated. So, gradual changes of passing-through of oil price to inflation by time-varying coefficient regression were measured and finally effective factors on oil price passing-through to inflation were investigated. Result indicated that the coefficients of oil price passing-through to inflation in long-run and short-run were about 38 and 8.6 percen, respectively. Results of investigating effective factors on oil price shocks on inflation indicated that true management of excess incomes of oil, improving money policies and preparing suitable substructures for increasing competition power of domestic producers can be useful for preventing of inflating effects of oil shocks.