Abstract
Purpose: The monetarists, in explaining the dynamics of inflation, have emphasized the growth rate of the money supply. However, there is extensive empirical evidence to validate and validate this monetary logic. There are a number of criticisms already suggest that the monetarists may exaggerate the emphasis on the role of money supply in raising inflation. Therefore, the purpose of the present study is to investigate the extent to which inflation is caused by monetary phenomena in Iran. Method: In this paper, the impact of money supply and other factors influencing inflation including production, exchange rate and international oil prices are investigated. The analysis was performed using the instantaneous reaction functions and SVAR econometric models. Results: The empirical results generally indicate that money supply is a key source of inflation in Iran. According to the research findings, all of the estimated variables have a key role to play in increasing inflation in the economy. By comparison, real output has the lowest share, especially in the short run, while inflation is more sensitive to short and long run money shocks. Conclusion: The overall conclusion of the present study is that inflation in Iran is relatively a monetary phenomenon rather than an actual factor.
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