Document Type : Research Paper

Authors

• Ebrahim Hadian
• Reza Vaham

Abstract

The aim of this paper is twofold, one of them is to measure the permanent (core) and temporary components of  inflation in the context of  the  Iranian economy during the period 1961–2006. The other is to estimate the impact of  each component of inflation on the private investment in short-run and long-run. To do so, first we use  kalman filter method to decompose the actual inflation in to permanent and temporary inflation, then an ARDL model employed to estimate the effect of  permanent and temporary inflation on private investment. The results show that the temporary inflation negatively influences the investment in short-run, but in the long-run it has no effect.  Also these results indicat that an  increasing the core inflation in  long-run reduces the private investment, but in the short-run it has no effect. Therefor,the monetory and fiscal policies which are designed to adjust the inflation must be used in such manner that control the inflation but not negativly affect the economic performanc.

Keywords

• Iran’s economy
• core inflation
• inflation
• investment