Abstract
This study with its monetary viewpoint and in the form of P* model surveyed to test the money affect on inflation in Iranian economy. To achieve this goal OLS, ARDL techniques were used during 19792008. It should be noted that only the standard P* model (domestic price gap) were tested in this study. Considering that domestic price gap consists of output gap and velocity gap, the Hedrick–Prescott filter method is used to estimate the potential production levels and the velocity. Estimation results of various models show that the standard P* model (domestic price gap) is not able to explain and forecast inflation in Iran.
Highlights
Inflation is one of the most acute economic problems in various countries including Iran in recent decades
Because t-statistic is not significant in both equations ( 2), so we can conclude that output gap and velocity gap don't effect on inflation in Iran's economy, in the other word, standard P* model in which velocity and output gaps are independent variables can't explain inflation in Iran
For certainty on gained results, once sum of output and velocity gaps was pointed as independent variable in model and this time above results are confirmed based on inefficiency of P* model in inflation determination and prediction for Iran's economy and not being monetary of inflation in Iran's economy
Summary
Inflation is one of the most acute economic problems in various countries including Iran in recent decades This phenomenon makes much malfunction on both economical, policy system that we can pointed at economical instability, poverty, decreasing of economical growth rate, and it is following decreasing of general welfare, increasing in inequality of income distribution, decreasing in long run investment. The root of P* model can be found in the quantity of money theory In this model, there is a systematic relation between money and the levels of prices that based on we can study inflation status and forecast future process of prices which this topic has much important for monetary status and economical diplomats This model can be tested in 2 states: I) P* test at domestic price gap state (Standard P* model) II) P* test at foreign price gap state. There are money methods for estimating of these variables it is used of Hedrick – Prescott filter method for this goal in this research
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