The Relationship between Money, Government Spending and Inflation in the Iranian Economy

Mehrara, Mohsen; Sujoudi, Ahmad

doi:10.18052/www.scipress.com/ILSHS.51.89

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The Relationship between Money, Government Spending and Inflation in the Iranian Economy

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Abstract:

Inflation is one of the important macroeconomic variables that has a close relationship with many of the real and monetary variables and has unfavorable effects such as loss of productivity, reduction of economic growth, and rise of economic inequality. Therefore, the reduction of inflation has always been the most important economic objective of policy makers. The main objective of this study is to examine the relationship between, inflation, money supply and government spending in Iran during the period 1959-2010. To that end, Bayesian econometric approach was used. The results of the Bayesian Model averaging method imply that the growth rate of money, economic growth rate, inflation rate, the logarithm of the ratio of liquidity to GDP, and growth in energy prices had a significant positive significant effect on inflation. Among these 3 variables, growth rate of money has the highest impact on inflation. The results showed that the growth rate of government spending, GDP growth rate and the exchange rate had no significant effect on the inflation. Therefore, the study recommends controlling the inflation through decline in liquidity growth rate, and energy prices.

Info:

Periodical:

International Letters of Social and Humanistic Sciences (Volume 51)

Pages:

89-94

DOI:

https://doi.org/10.18052/www.scipress.com/ILSHS.51.89

Citation:

M. Mehrara and A. Sujoudi, "The Relationship between Money, Government Spending and Inflation in the Iranian Economy", International Letters of Social and Humanistic Sciences, Vol. 51, pp. 89-94, 2015

Online since:

May 2015

Authors:

Mohsen Mehrara, Ahmad Sujoudi

Keywords:

Bayesian Econometrics, Economy of Iran, Government Spending, Inflation, Money Supply

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Distribution:

Open Access

This work is licensed under a
Creative Commons Attribution 4.0 International License

References:

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[2] N. Milenković, B. Kalaš, V. Mirović, J. Andrašić, "The impact of macroeconomic determinants and tax form on inflation in selected Balkan countries", Serbian Journal of Management, Vol. 15, p. 7, 2020

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[3] S. KORKMAZ, H. GÜVENOĞLU, "THE RELATIONSHIP BETWEEN GOVERNMENT EXPENDITURES, ECONOMIC GROWTH AND INFLATION IN OECD COUNTRIES", Finans Ekonomi ve Sosyal Araştırmalar Dergisi, 2021

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