Inflation Dynamics In Iran: A Time-Series Analysis

Abstract

Inflation poses a persistent and complex challenge for Iran, driven by structural inefficiencies, institutional weaknesses, and the compounded effects of international sanctions. This study examines the key macroeconomic determinants of inflation in Iran from 2001Q1 to 2023Q4 using the Autoregressive Distributed Lag (ARDL) approach. The analysis focuses on the role of real interest rates, money supply, GDP growth, fiscal deficits, and international sanctions in shaping inflationary trends. The findings reveal that higher real interest rates and robust GDP growth are associated with reduced inflationary pressures, highlighting their stabilizing effects. Conversely, fiscal deficits are found to exacerbate inflation, underscoring the inflationary consequences of unsustainable public finance. While the money supply shows a positive but weak influence on inflation, international sanctions do not exhibit a significant direct impact within the estimated model. These results underscore the importance of coordinated macroeconomic policies, emphasizing monetary prudence and fiscal discipline, to address inflation in geopolitically sensitive and structurally vulnerable economies like Iran.