Inflation and Money in Iran: An Application of Bounds Test

Abstract

This paper provides new evidence on the long-run relationship between money and inflation of Iran economy by
using quarterly data during time period of 1989:1-2007:4 and applies bounds test approach to cointegration. To
investigate the long-run relationship between variables under consideration, this paper applies the bound test
approach to cointegration. This method is developed by Pesaran et al. [1] and can be applied irrespective of the
order of integration of the variables. The results reveal that there is a long run relationship among these variables.
Also, we find that Inflation is mostly a monetary phenomenon, supporting quantity theory of money.
Keywords: Bound test, Iran, Inflation, Money.