Determinants of Inflation: The Case of Iran

This study examines the factors that affect the rate of inflation in Iran. The data used in this study were collected from the period of 1965 to 2012. Using Augmented Dickey Fuller (ADF) test for ascertaining the presence of unit root and stationarity of the series and Johansen co-integration test is used to explore the presence of long-run relationship among the series. An Error Correction Model is also used to capture the convergence of the inflation determining factors to achieving long run equilibrium. Findings show there exist a long run relationship between variables of money supply, gross domestic product, oil export revenue and Inflation. Error correction model shows short-run equilibrium takes place to equalize the model in long-run.