TY - JOUR ID - 66641 TI - The External Determinants of Inflation: The Case of Iran JO - Iranian Economic Review JA - IER LA - en SN - 1026-6542 AU - Hemmati, Abdolnaser AU - Niakan, Leili AU - Varahrami, Vida AD - Department of Economics, Tehran University, Tehran, Iran AD - Insurance Research Center, Tehran, Iran AD - Faculty of Economics, Shahid Beheshti University, Tehran, Iran Y1 - 2018 PY - 2018 VL - 22 IS - 3 SP - 741 EP - 752 KW - Keywords: Inflation KW - External Determinants KW - Exchange rate KW - Effective Tariff. JEL Classification: E31 KW - E52 KW - E58 DO - 10.22059/ier.2018.66641 N2 - The study of determining the factors affecting inflation or consumer price index has been conducted by many macroeconomic economists nationally as well as internationally. In this paper, we assess the external determinants of inflation dynamics in Iran. For this purpose, we use an OLS single equation model and a vector error correction model (VECM). Results of the analysis reveal that money supply, exchange rate, import price index and intensification of sanctions are contributed in raising general price index in the long run. Long-run elasticity of inflation with respect to money supply, exchange rate, effective tariff and import price index are 0.25, 0.118, 0.087 and 0.71. Moreover, in every year that the severity of sanctions has increased, inflation increases with amount of 0.084 (or 8.4%).Results of OLS single equation model show that only 21% of the domestic inflation variance in short run is explained by the independent variables. Iran's inflation is driven mostly by exchange rate (with one season lag) and effective tariff (with two seasons lag). In the short run, the coefficient of error correction term is -0.13 suggesting 13 percent annual adjustment towards long run equilibrium. General Price index of last year and unit price of imported goods of two years before are found to be positively related with general price index.   UR - https://ier.ut.ac.ir/article_66641.html L1 - https://ier.ut.ac.ir/article_66641_bb773549aa289e739454a88e46d76a8c.pdf ER -