Money and Inflation in Iran: Evidence from P* Model

Abstract

This study with its monetary viewpoint and in the form of P* model surveyed to test the money affect on inflation in Iranian economy. To achieve this goal OLS, ARDL techniques were used during 19792008. It should be noted that only the standard P* model (domestic price gap) were tested in this study. Considering that domestic price gap consists of output gap and velocity gap, the Hedrick–Prescott filter method is used to estimate the potential production levels and the velocity. Estimation results of various models show that the standard P* model (domestic price gap) is not able to explain and forecast inflation in Iran.