Inflation and Cost Push in Iran's Economy

Abstract

There have been two broad theories of inflation, namely the demand-pull theory of inflation (that is nowadays mainly the monetary theory of inflation) and the cost-push theory of inflation. The mainstream macroeconomics views inflation as a monetary phenomenon in the long run. Iran has experienced double-digit rates of inflation for about four decades. Our main aim is an explanation for the long-run movements in the rate of inflation. We have used the raw data and the filtered data on the rate of inflation and the growth rate of the money supply to show that there is a long-run relationship. Also, we have used cointegration VAR method to show that there is a long-run relationship between the price level and the money supply but not between the price level and the cost-push factors. The empirical findings are not inconsistentwith the monetary theory of inflation in Iran.