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The Nonlinear Effect of Inflationary Expectations and Budget Deficit on Inflation in Iran
Samaneh Omidpour, Nader Mehregan, Ali Souri,
Volume 15, Issue 55 (5-2024)
Abstract
Introduction
Inflation, as one of the structural and chronic issues of Iran's economy, has always remained at high levels and has had widespread effects on macroeconomic variables and social welfare. The persistence of high inflation leads to instability in economic, social, and political spheres, to the extent that in some cases, inflationary instability can even result in the downfall of governments. Therefore, understanding the roots of inflation can help policymakers in designing appropriate policies to control and curb it.
Numerous studies have examined the factors influencing inflation and the role of inflation expectations.The literature review revealed that, so far, no comprehensive research has been conducted on the factors affecting inflation, with an emphasis on the nonlinear relationship between inflation expectations and budget deficits within the framework of the New Keynesian approach in Iran. Additionally, the study employs the Hodrick-Prescott filter and the Kalman filter to measure inflation expectations, which is considered an innovative approach. Furthermore, relying on the New Keynesian framework, this study examines the role of the output gap, budget deficit, exchange rate, and inflation expectations in the formation of inflation, specifically identifying the asymmetric impact of inflation expectations.
Method
The aim of this study is to examine the nonlinear effects of inflation expectations and budget deficits on inflation in Iran. For this purpose, the New Keynesian approach and the Nonlinear Autoregressive Distributed Lag (NARDL) method have been used to estimate the model over the period 1988 to 2022. Inflation expectations have been calculated using two methods: the Hodrick-Prescott filter and the Kalman filter.
Results and Discussion
The research findings indicate that the estimated models based on both filters yielded very similar results, demonstrating the robustness of the study's outcomes. Additionally, the results show that variables such as the output gap, inflation expectations, budget deficit, and exchange rate influence the inflation rate. Furthermore, inflation expectations have an asymmetric effect on inflation, where their increase leads to greater persistence and stability of inflation. Moreover, inappropriate fiscal policies exacerbate inflationary pressures by intensifying the budget deficit.
Keywords:  Inflationary expectations,  budget deficit,  inflation, Iran, NARDL.
JEL: E62, E31,H62
 
The impact of China's economic growth shocks on Iran's macroeconomic variables: application of the GVAR model
Mrs Farzaneh Vafadar, Dr Ghodratollah Emamverdi, Dr Abolfazl Ghiasvand, Dr Marjan Damankeshideh,
Volume 15, Issue 55 (5-2024)
Abstract
Due to the wide trade relationship between the countries of the world and the economic dependence of the countries on the global economy, the boom or record in the great economic powers of the world will quickly affect the economy of other countries.
In recent years, China has become one of the largest economic powers in the world and has been one of Iran's main trading partners for many years and is one of the countries that can have the greatest impact on Iran's economy.
On the other hand, due to the tightening of international sanctions on Iran in recent years, many measures have been taken to expand trade relations with other countries and attract foreign capital, among which the role of China as the main trading partner of Iran is prominent and it is necessary to reduce the shocks caused by To know the changes in China's economic growth and their effect on the macroeconomic indicators of the country.
Accordingly, the present study examines the effect of China's economic growth shocks on Iran's real GDP, inflation rate, and non-oil exports. In this regard, (GVAR) model and seasonal data from 1992 to 2022 for 34 major trading partner countries of Iran have been used.
The results of the study showed that the effect of a positive shock in China's real GDP on Iran's real GDP is positive in the short term, but in the long term, the said shock is negative and in the direction of its reduction. In relation to inflation, the effect of a positive shock to China's real production on Iran's inflation rate has always been positive and negative on Iran's non-oil exports.
The effect of inflation on economic growth in macroeconomic uncertainty
Dc Azam Ahmadyan, Dr Reza Akbarian,
Volume 15, Issue 56 (8-2024)
Abstract
Today, the importance of the effectiveness of economic growth on inflation is not hidden from anyone. The literature expresses different views about the effect of inflation on economic growth. Some studies have emphasized the existence of a positive relationship, some studies have emphasized the existence of a negative relationship, and some have considered the effect of inflation on economic growth to be neutral. In recent decades, Iranian economy has faced inflationary conditions that can affect economic growth. Macroeconomics uncertainties can also intensify the negative effect of inflation on economic growth. Considering the importance of the issue, in this article, the vulnerability of economic growth to inflation in the conditions of macroeconomic uncertainties is investigated. For this purpose, using time series data during 1370-1401, the dynamics of the effect of inflation on economic growth has been investigated, using the autoregression method with a distribution with an interval. Since inflation at different levels and thresholds can have a different effect on economic growth, the threshold effect of inflation has been investigated using the threshold regression method. Considering the different effect of inflation in macroeconomic uncertainty, the effect of inflation at the level and threshold on economic growth has been investigated once considering macroeconomic uncertainty and another time without considering macroeconomic uncertainty. E-GARCH method has been used to extract macroeconomic uncertainty. In the models examined in the article, uncertainty of exchange rate, uncertainty of liquidity and uncertainty of stock price index were considered. The findings indicate, inflation at the level without macroeconomic uncertainty has a positive effect on economic growth, but taking macroeconomic uncertainty into account, inflation at the level has a negative effect on economic growth. Also, considering macroeconomic uncertainty indicates that the negative effect of inflation on economic growth is intensified.

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