Jump to ContentJump to Main Navigation
Show Summary Details
More options …

Review of Middle East Economics and Finance

Ed. by Dibeh, Ghassan / Assaf, Ata / Cobham, David / Hakimian, Hassan / Henry, Clement M.

See all formats and pricing
More options …
Volume 13, Issue 2

Iran’s Inflationary Experience: Demand Pressures, External Shocks, and Supply Constraints

Magda Kandil
  • Corresponding author
  • Research and Statistics, Central Bank of the United Arab Emirates, Abu Dhabi, United Arab Emirates
  • Email
  • Other articles by this author:
  • De Gruyter OnlineGoogle Scholar
/ Ida A. Mirzaie
Published Online: 2017-09-22 | DOI: https://doi.org/10.1515/rmeef-2016-0018


This paper studies determinants of inflation in Iran. The buildup of international reserves has accelerated during the episode of higher oil price. The associated increase in government spending has limited contribution to capacity building and pronounced inflationary pressures, which accelerated at the beginning of the Iran-Iraq war in 1980, and eased at the end of the war in 1988. Accommodating monetary stance has proven to be an important determinant of inflation, both in the long and in the short-runs. In the long-run, depreciation of the rial increases the cost of intermediate goods, increasing inflationary pressures with limited significant effect on output. In contrast, depreciation could boost competitiveness of non-energy exports, in support of higher demand and output growth in the short-run. For policy implications, priorities going forward should be in place to direct both public and private resources toward relaxing binding capacity constraints, capitalizing on oil resources in Iran and the prospects of the positive implications of lifting sanctions in the context of the recent nuclear agreement between Iran and the G5+1 countries.

Keywords: inflation; import price; domestic policies; oil wealth; exchange rate

JEL Classification: E61; E62; E63; E32; E21


  • Al Raisi, A., and S. Pattanaik. (2003).Central Bank of Oman Occasional Paper No. 2005–1 Pass-Through of Exchange Rate Changes to Domestic Prices in Oman.Google Scholar

  • Alavinasab, S.M. 2014. “Determinants of Inflation: The Case of Iran.” International Journal of Social Science and Management 1 (1): 71–77.Google Scholar

  • Alavirad, A. (2003).Organization of the Petroleum Exporting Countries The Effect of Inflation on Government Revenue and Expenditure: The Case of the Islamic Republic of Iran.Google Scholar

  • Alavirad, A., and S. Athawale. 2005 (March). “The Impact of the Budget Deficit on Inflation in the Islamic Republic of Iran.” OPEC Review 37–49.Google Scholar

  • Astou, D.M. (2007).IMF Working Paper, WP/07/296 Modeling Inflation for Mali.Google Scholar

  • Bahmani, M., and M. Kandil. 2010. “Exchange Rate Fluctuations and Oil in Oil-Producing Countries: The Case of Iran.” Emerging Markets Finance and Trade 46 (3): 23–45. May-June.Web of ScienceCrossrefGoogle Scholar

  • Bazmohammadi, H., and A. Cheshmi. (2006).Central Bank of the Islamic Republic of Iran, no. 29 Government Size in the Iranian Economy, Economic Research Department.Google Scholar

  • Bonato, L. (2007).IMF Working Paper, 07/119 Money and Inflation in the Islamic Republic of Iran.Google Scholar

  • Bonato, L. 2008. “Money and Inflation in the Islamic Republic of Iran.” Review of Middle East Economics and Finance 4 (1):. Article 3.Google Scholar

  • Darrat, A.F. 1985. “Inflation in Saudi Arabia: An Econometric Investigation.” Journal of Economic Studies 12 (4): 41–51.CrossrefGoogle Scholar

  • deBrouwer, G., and N.R. Ericsson. 1998. “Modeling Inflation in Australia.” Journal of Business and Economic Statistics 16 (4): 433–449.Google Scholar

  • Esfahani, H., and H. Pesaran. Oil Exports and Iranian Economy. Quarterly Review of Economics and Finance, 53 2013.

  • Gholibeglou, M. Inflation, Inflation Uncertainty, and Relative Price Dispersion. Central Bank of the Islamic Republic of Iran, no. 31 2008 Economic Research Department.

  • Hosny, A. 2013 . “Inflation in Egypt, Internal or External Driven?” Middle East Development Journal 05 (03): 1350019-1– 1350019-15.Google Scholar

  • Juselius, K. 1992. “Domestic and Foreign Effects on Prices in an Open Economy: The Case of Denmark.” Journal of Policy Modeling 14 (4): 401–428.CrossrefGoogle Scholar

  • Kamiar, M., and O.H. Williams. 2013. “Inflation Differentials in the GCC: Does the Oil Cycle Matter?” Middle East Development Journal 05: 1350012-1–1350012-23.Google Scholar

  • Kandil, M., and I. Mirzaie. 2002. “Exchange Rate Fluctuations and Disaggregated Economic Activity in the U.S.: Theory and Evidence.” Journal of International Money and Finance 1 (February): 1–31.Google Scholar

  • Kandil, M., and I. Mirzaie. 2005. ““The Effects of Exchange Rate Fluctuations on Output and Price: Evidence from Developing Countries.” Journal of Developing Areas 38 (2): 189–219. spring.CrossrefGoogle Scholar

  • Kandil, M., and H. Morsy. 2011. “Determinants of Inflation in GCC.” Middle East Development Journal 3: 1–18.Google Scholar

  • Keran, M.W., and A.A. Al Malik. 1979. “Monetary Sources of Inflation in Saudi Arabia’.” Economic Review issue Winter.supplement.Google Scholar

  • Khan, M.S., and A. Schimmelpfennig. (2006).IMF Working Paper, WP/06/06 Inflation in Pakistan: Money or Wheat?.Google Scholar

  • Khandan, A., and S.M. Hosseini. 2016. “Determinants of Inflation: A Case Study of Iran.” Applied Economics and Finance 3 (4): 95–102.Google Scholar

  • Lim, C.H., and L. Papi. (1997).IMF Working Paper no 1–32 An Econometric Analysis of the Determinants of Inflation in Turkey170.Google Scholar

  • Qumarsi, M. (2005).Economic Research Department, Central Bank of the Islamic Republic of Iran, no. 28 Mortgage Market and Inadequacy of Housing Finance Mechanisms in Iran.Google Scholar

  • Rogoff, K. 1996. “The Purchasing Power Parity Puzzle.” Journal of Economic Literature 34 (2): 647–668.Google Scholar

  • Sekine, T. (2001).IMF Working Paper No. 01/82, June Modeling and Forecasting Inflation in Japan.Google Scholar

About the article

The views in this paper are those of the authors and do not necessarily represent those of the CBUAE or CBUAE policy.

Published Online: 2017-09-22

Citation Information: Review of Middle East Economics and Finance, Volume 13, Issue 2, 20160018, ISSN (Online) 1475-3693, DOI: https://doi.org/10.1515/rmeef-2016-0018.

Export Citation

© 2017 Walter de Gruyter GmbH, Berlin/Boston.Get Permission

Comments (0)

Please log in or register to comment.
Log in