Analyzing the Impact of Liquidity on Inflation in the Iranian Economy; Econometric Models in the Period 2003 to 2024

Document Type : Original Article

Authors

1 Economic affairs expert, PhD student in economics, Supreme National Defense University.

2 Faculty member of the Economics Department, National Defense University, Tehran, Iran.

3 PhD student in Political Science, Institute for Humanities and Cultural Studies, Tehran, Iran.

Abstract

This research analyzes and examines the impact of liquidity on inflation in the Iranian economy during the period 2003 to 2024. Given the importance of liquidity as one of the most important economic factors, this study used advanced econometric methods including the ADF unit root test, Johnson's cointegration test, and linear regression model to analyze the relationship between liquidity and inflation over time. The results of the study show that liquidity directly and significantly affects the level of inflation. Especially in certain periods, the increase in the volume of liquidity has led to an increase in inflation in the Iranian economy. Also, the cointegration test indicates the existence of a long-run relationship between liquidity and inflation, which indicates that changes in the volume of liquidity have persistent effects on inflation. The regression model also shows that an increase of one unit of liquidity can cause an increase of 0.85 units of inflation over the same period. This research recommends that economic policymakers effectively manage the volume of liquidity and use monetary policies such as interest rate adjustments and open market operations to control inflation. The results of this study can be a guide for economic and monetary decision-making, especially in a situation where the inflation rate in the country is continuously increasing. Also, the limitations of the research in the field of data and models used are discussed and suggestions for future research in this area are presented.

Keywords

Theorizing criticism debate
Volume 3, Issue 1
September 2024
Pages 103-128

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