Evaluating the Effects of Oil Revenues Fluctuations on Core Inflation in Iran (1338-1388)

Arman, Seyed Aziz; Ahangari, Abdulmajid; Zarra-Nezhad, Mansour; Zeinvand, Abdullah

doi:10.22096/esp.2013.26165

Evaluating the Effects of Oil Revenues Fluctuations on Core Inflation in Iran (1338-1388)

Document Type : Original Article

Authors

Seyed Aziz Arman ¹

Abdulmajid Ahangari ²

Mansour Zarra-Nezhad ³

Abdullah Zeinvand ⁴

¹ Associate Professor of Economics, Shahid Chamran University of Ahvaz

² Assistant Professor of Economics, Shahid Chamran University of Ahvaz

³ Professor of Economics, Shahid Chamran University of Ahvaz

⁴ PhD student in Economics, Shahid Chamran University, Ahvaz

10.22096/esp.2013.26165

Abstract

The oil revenue in terms of its situation in the GDP and its share in the budget and foreign exchange resources of the Iranian economy is very important. The dependence of government budget to oil revenue and its fluctuations is pointed out by many researchers as the main cause of inflation. The effect of fluctuations in oil revenues on core inflation is evaluated using VARX approach. Results show that, besides a significant positive effect of the permanent (smoothed or long-run) component, there is also a significant positive effect of cyclical component of oil revenues on core inflation. Subsequently, if the government purchases only the smoothed part of oil revenue and discard the transitory part, the core inflation could be significantly reduced.

Keywords

Oil Revenue

Core Inflation

Government Budget

Dutch Disease

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